Individuals with mental illness are overrepresented in custodial settings. We examine the overlap between incarceration and diagnosed mental illness in a population-based cohort born in Queensland in 1990. Data were extracted when the cohort was 23 or 24 years old. The population included 44,952 individuals (6.3 per cent Indigenous Australians, 45.8 per cent male), of which 1.5 per cent (n = 690) had at least one custodial sentence, and 6.1 per cent (n = 2,723) had at least one inpatient mental health diagnosis. Most individuals (91.5 per cent) with a mental health diagnosis did not have a custodial sentence. However, a substantial proportion of individuals (33.6 per cent) with a custodial sentence also had an inpatient mental health diagnosis. When examined by gender and Indigenous status, clear patterns emerged. Indigenous Australians were overrepresented in both the mental health and prison systems. Females with a custodial sentence were more likely than males to have a mental health diagnosis. Our analysis highlights the vulnerability of individuals with mental illness within the prison system.