BACKGROUND: While transactional models suggest that parent and child mental health reciprocally influence one another over development, research has largely focused on parent-to-child effects. Additionally, it is not known whether observed associations hold when appropriate statistical tools are used to operationalise within-family dynamics. METHODS: We investigated within-family mental health dynamics using autoregressive latent trajectory models with structured residuals, stratified by child gender. Parental psychological distress was assessed using the Kessler (K6) scale, and children's internalising and externalising problems were assessed using the Strengths and Difficulties Questionnaire. Both measures were administered at the age 3, 5, 7, 11, 14 and 17 waves of the Millennium Cohort Study (N = 10,746, ~50% female). RESULTS: Maternal psychological distress was positively associated with subsequent internalising and externalising problems for girls but only with internalising problems for boys. Paternal psychological distress was associated with boys' later internalising and externalising problems during early adolescence. Among boys, internalising problems were associated with later maternal psychological distress, while externalising problems were associated with later paternal psychological distress. Among girls, internalising problems were associated with subsequent paternal psychological distress, while externalising problems were associated with later maternal psychological distress. Finally, maternal and paternal psychological distress showed negative bidirectional associations in early childhood but positive associations in middle childhood and early adolescence. CONCLUSIONS: Findings support a transactional model of family mental health, with both child-to-parent and parent-to-child effects playing a role in the development of mental health difficulties. Mental health intervention efforts should, therefore, target the whole family system.