Objective Although mental health disorders in older adults are common, their relationship with chronic disease and the influence of chronic disease on the development of mental health disorders over time is not well understood. This longitudinal study investigated the change in status of mental health disorders and chronic disease, as well as their interrelationships, over time. Methods Participants included community‐dwelling older adults living in Taiwan, aged 65 years or older, who completed six waves of survey interviews. Mental health disorders were scored using the Short Psychiatric Evaluation Schedule, and chronic disease(s) status was recorded during consecutive biennial data collection waves. The autoregressive latent trajectory model and parallel latent growth curve model were used for data analysis. Results The study findings suggest that in older people pre‐existing mental health disorders and/or chronic disease(s) will predispose them to developing significantly more mental health disorders and/or chronic diseases respectively. The study findings also suggest that pre‐existing mental health disorders can significantly contribute to the development of chronic disease over time, and that pre‐existing chronic disease(s) significantly can contribute to the development of mental health disorders over time, indicating a reciprocal interrelationship. Conclusions Our study findings suggest that it in addition to monitoring and treating chronic disease(s) in older people, it is also important to monitor and treat their mental health disorders. Doing so will result in overall better health outcomes and will facilitate a better quality of life as they age.