Objectives This study set out to examine the bidirectional relationship between loneliness and productive engagement, delineate the association between different dimensions of productive engagement and depression, and explore the potential mediating effect of sleep-wake disturbances in the relationship between loneliness and/or productive engagement and depression. Method Data from a total of 4427 older adults in China were included in the analysis. Factor analysis was conducted to explore a set of discrete dimensions of productive engagement (recreational activities, group artistic and learning activities, sportive activities, paid work, volunteering, and family caregiving). Structural equation modeling was used to assess the potential relationships between loneliness, multidimensional productive engagement, sleep-wake disturbances, and depression. Results All dimensions of productive engagement were found to be negatively associated with loneliness, except for paid work which was associated with elevated level of self-reported loneliness. Sleep-wake disturbances mediated the relationship between leisure activities and depression but this was not significantly related to other forms of productive engagement. The direct effect of productive engagement on depression varied, in that leisure activities and family caregiving were negatively associated with depressive symptoms, while doing paid work was positively associated with depressive symptoms. Volunteering was not significantly related to depressive symptoms. Discussion This study makes an important contribution to the research on the relationship between loneliness, productive engagement, sleep-wake disturbances, and depression, by distinguishing the different effects of different dimensions of productive engagement. The findings provide a robust stimulus for intervention programs and other forms of social work practice seeking to mitigate depressive symptoms in older adults.