With the growth in the number of older people, an increase of mental health problems might be expected. Reducing the amount of suffering and dependence due to poor mental health in old age is a priority requiring a good understanding of the determinants of psychological distress. The objectives were: (a) to measure the prevalence of psychological distress and loneliness in old men and women, living in the community, (b) to clarify the association between psychological distress, health and other explanatory variables and (c) to determine relationship between loneliness and psychological distress. We performed a cross-sectional study of 999 people aged 65+. The variables studied were psychological distress (GHQ-12) and self-reported loneliness. The prevalence of psychological distress was 20%. Illness and disability are related to psychological distress in old age; the feeling of loneliness is the single most important predictor of psychological distress, and not knowing neighbours increases the probability of depression. Attempts to improve detection and management of psychological distress in sick older people, in those who appear isolated and express loneliness should be evaluated.