As the HIV pandemic progresses, the number of orphans is expected to rise. Uganda is one of the countries that has been most impacted by the pandemic. A few studies have explored the effects of orphanhood on psychological well-being; however, most of these studies have not explored potential pathways through which orphanhood could affect psychological well-being. Using a school-based sample, this study sought to examine the differences in depressive symptoms and hopelessness between orphans and non-orphans in Mukono District, Uganda. The study also explored the potential mediating role of the family environment. The study included 1500 young people from 10 randomly selected schools in Mukono Town Council. Data on school characteristics also were collected from the head teachers or their designees. Linear regression methods were used for multivariate models. We found that orphanhood was associated with psychological ill health among the males. Male double and male maternal orphans had a significantly higher level of hopelessness than their non-orphaned counterparts. Male double orphans also had more depressive symptoms, but this association was mediated by the family environment. No differences were noted between orphaned and non-orphaned females. The cause and timing of parental death was important only among the males, and loss of a parent to HIV was associated with worse psychological outcomes among the males and not the females. Lower parent/guardian connectedness, having a chronically ill adult in the household and ill treatment in residence were associated with a higher level of depression, especially among the males. The data show that the effect of orphanhood on psychological outcomes may vary by gender and type of outcome. This study also suggests an attenuated effect of orphanhood on psychological well-being among school-going youth. Programs seeking to improve psychological well-being among youth must pay attention to the family situations of these youth.