Transgender and gender diverse (TGD) individuals face high rates of psychological distress, including depression, anxiety, and suicide risk. Further, TGD individuals living outside of urban areas experience additional disparities compared to their urban counterparts. Minority stress theory states that minority stressors (termed marginalization stressors for this paper), such as experiences of discrimination and internalized transphobia, lead to psychological distress. The current study compared marginalization stressors across rural (population less than 2,500), urban cluster (population between 2,500 and 50,000), and urban (population greater than 50,000) samples and tested the degree to which these stressors account for differences across areas of residence. Participants were 225 TGD individuals who completed an online survey that included measures of depression, anxiety, suicidal ideation marginalization stress, and protective factors. In the first model, mental health outcomes, marginalization stressors, and protective factors differed between areas. Urban cluster participants reported experiencing higher levels of depression, anxiety, and suicidal ideation and rural participants reported experiencing higher levels of depression suicidal ideation than urban participants. Both rural and urban cluster participants reported more experiences of several marginalization stressors. In the subsequent path model, indirect effects between area and marginalization stress variables were significant, but urban cluster participants still reported higher depression, anxiety, and suicidal ideation symptoms (p-values < .05). We demonstrate that marginalization stress processes appear to account for some of the differences between TGD individuals living in urban, rural, and urban cluster areas. The differences between areas largely persist, however, after controlling for marginalization stress, especially when comparing urban with urban cluster areas.