Objectives: Young people are sleeping less. Short sleep duration has a range of negative consequences including a hypothesized link with psychological distress, which has yet to be studied Design: Prospective cohort study Setting: Community-based sample from Australia Participants: Twenty thousand (20,822) young adults (aged 17-24) identified through the state vehicle licensing authority. A random sample (n = 5000) was approached for follow-up 12-18 months later, with 2937 providing full data. Main Outcome Measure: Psychological distress, determined by a Kessler 10 score > 21, at baseline; and as both onset and persistence of distress at follow-up. Results: Shorter sleep duration was linearly associated with prevalent psychological distress: relative risk (RR) 1.14 (95%CI 1.12 to 1.15). Only the very short (< 5 h) sleepers among those not distressed at baseline had an increased risk for onset of psychological distress (RR 3.25 [95% CI 1.84, 5.75]). Of 945 cohort participants reporting psychological distress at baseline, 419 (44%) were distressed at follow-up. Each hour less of sleep increased the risk of psychological distress persisting after adjustment for potential confounding variables: RR 1.05 (95%CI 1.01 to 1.10). Long sleep duration showed no association with distress at any time point. Conclusions: Self-reported shorter sleep duration is linearly associated with prevalent and persistent psychological distress in young adults. In contrast, only the very short sleepers had a raised risk of new onset of distress. Different approaches to sleep duration measurement yield different results and should guide any interventions to improve subjective sleep duration in young adults.