Abstract Background The impact of air pollution on individuals’ happiness and life satisfaction (LS), and its relationship to other factors became the focus of recent research. Though, the underlying mechanism of how air pollution impacts LS remains unclear. In this study, we examined the direct and indirect effect of air pollution on individuals’ LS through health mediation. Methods We used longitudinal individual-level data from “Understanding-Society: the UK Household-Longitudinal Study” on 59,492 individuals with 347,377 repeated responses across 11 years (2009-2019) that was linked to yearly concentrations of NO2, SO2, and particulate-matter (PM10, PM2.5) pollution. Generalized structural equation models with multilevel ordered-logistic regression were used to examine the direct effect of air pollution on LS and the indirect effect from health impairment. Results Higher concentrations of NO2 (coefficient = 0.009, 95%CI = 0.007,0.012, p < 0.001), SO2 (coefficient = 0.025, 95%CI = 0.017,0.034, p < 0.001), PM10 (coefficient = 0.019, 95%CI = 0.013, 0.025, p < 0.001), and PM2.5 (coefficient = 0.025, 95%CI = 0.017,0.033, p < 0.001) pollutants were associated with poorer health, while poorer health was associated with reduced LS (coefficient = -0.605, 95%CI = -0.614,-0.595, p < 0.001). Mediation path analysis showed that air pollution impacted individuals’ LS directly and indirectly. The percent of total effect mediated through health was 44.03% for NO2, 73.95% for SO2, 49.88% for PM10, and 45.42% for PM2.5 and the ratio of indirect to direct effect was 0.79 for NO2, 2.84 for SO2, 0.99 for PM10, and 0.83 for PM2.5. Conclusions Health plays a major mediating role in the relationship between air pollution and LS. To alleviate the impact of air pollution on LS, future strategies should focus on health promotion besides reducing air pollution emissions. Key messages • Air pollution is related to lower life satisfaction directly and indirectly through health impairment. • Strategies and policies aiming at reducing air pollution emissions and better health would improve the individual’s life satisfaction and lower the mental health burden.