Objective The frequency of psychological distress amongst welfare recipient job seekers in Australia has largely been neglected by researchers and social policy experts. A link between a high level of psychological distress and reduced capacity to work has recently been identified. This is of significant concern as welfare recipients are increasingly expected to participate in programmes in exchange for their welfare payments. The objective of this project was to estimate the frequency of psychological distress amongst this population and to identify characteristics associated with an increased risk of distress. Method A sample of 519 income support job seekers aged 15–64 years was interviewed using the Kessler Psychological Distress scale. Results Forty‐five per cent of the sample met the clinical criteria for psychological distress and were deemed likely to have a Diagnostic and Statistical Manual 4th ed., (DSM‐IV) diagnosis of depression and/or anxiety. Several risk factors for psychological distress were identified, including being aged between 40 and 54 years, being female, and being classed as long‐term unemployed. Conclusions Findings from this study now provide some Australian figures on the frequency of psychological distress amongst welfare recipient job seekers. The implementation of social policy changes in intervention programmes is recommended to improve the psychological well‐being of welfare recipient job seekers in Australia and ensure their capacity to meet income support obligations.