Despite growing evidence that policy environments influence mental health, we have limited knowledge of how policy environments influence the stress processes that shape mental health. This study develops and tests a theoretical framework that structuralizes the stress process model by explicating how the state policy context (1) directly influences mental health, (2) indirectly influences mental health via stress exposure, and (3) mitigates the impact of stressors on mental health. This study uses nationally representative data from the Household Pulse Survey (2020–2023; n = 3,043,961) and the Behavioral Risk Factor Surveillance System (BRFSS; 2015–2019; n = 1,989,932) merged with state policy liberalism data to consider how state policy liberalism—the ideological orientation of state policies—shapes mental health. Results show that more liberal state policies were associated with lower odds of probable depression, probable anxiety, and frequent mental distress and weakened associations between three focal economic stressors—income loss, financial hardship, employment status—and mental health outcomes. Moreover, the association between state policy liberalism and mental health was partially mediated by financial hardship. Findings differed slightly by age: mediation via financial hardship was more evident among older adults (65+), whereas the buffering of economic-related stressors was mostly among adults under sixty-five. Overall, this study demonstrates the importance of a structuralized stress process model for mental health research.