Gender diverse people in the United States are uniquely vulnerable to deleterious health outcomes because of long-enshrined systems of oppression and marginalization in American society. Trans young adults are especially vulnerable to these deleterious outcomes owing to their unique position in the life course. However, more research is needed on the mechanisms through which this marginalization contributes to mental health disparities in trans populations. Using a minority stress framework and online cross-sectional survey design, the current study examines potential mediators of the relationship between transgender identity-related distal stress and psychological distress from late May to early July 2020 in a sample of transgender young adults (N = 239; ages 18–29). More than half the sample scored above the K6 cutoff for severe psychological distress. Distal stress had a significant direct (β = .17, SE = .04, t = 2.76, p = .006) and indirect effect on psychological distress. Distal stress was indirectly associated with psychological distress through gender dysphoria (β = .04; 95% CI [.001, .10]) and emotion dysregulation (β = .16; 95% CI [.09, .23]). COVID-19 pandemic stressors were also positively associated with psychological distress (β = .36, SE = .12, t = 5.95, p < .001). Results highlight the significant mental health burden facing the trans community especially in the COVID-19 context, support a conceptualization of gender dysphoria as connected to experiences of oppression, and affirm the relevance of emotion dysregulation within minority stress frameworks. Mental health resources cognizant of the specific challenges experienced by trans young adults as well as policy changes that seek to address underlying structural transphobia in American culture and institutions are urgently needed.