Before the Omicron variant ran amok inside China in November 2022, the Chinese central government’s dynamic zero-COVID policy effectively contained the spread of the coronavirus and its variants during multiple waves of outbreaks. However, it was not without cost. This study examines the impacts of stringent lockdown interventions on urban residents’ mental health during the initial outbreak of the Omicron variant in the spring of 2022. Using survey data from 522 respondents within the same neighbourhood and a spatial quasi-experimental design, the results show that strict lockdown interventions are significantly related to higher levels of psychological distress after controlling for observed confounders and that lockdown interventions have further spillover effects on mental health for residents in adjacent residential compounds who are otherwise free. Moreover, the results show that the lack of material supplies and medical care plays a more salient role in explaining lockdown effects on psychological distress than residents’ social interaction and trust levels of COVID-19 policy. Policy and intervention implications are also discussed.