Prior research indicated that restriction of normal activities is an important factor in poorer mental health outcomes (Williamson, 2000). The present study aims to investigate the relationship between ageing-related physical decline in mental health, and how this relationship is mediated by restricted routine activities. Data were drawn from the New Zealand Longitudinal Study of Aging (2006-2008), with complete data available for 2170 participants (Mean age = 61.24 years; SD = 4.56). Self-rated health as compared to last year was used to assess ageing-related physical decline and mental health was measured by the SF 36. Activity restriction was assessed by the 16-items attributed to restricted normal activities adapted from the Physical Component of the SF-36. Several sociodemographic factors were also measured. Mediational analysis using multiple regression equations indicated that ageing-related physical decline was a significant longitudinal predictor of decrements in mental health, after statistically controlling for various sociodemographic factors and baseline scores of the outcome variable. Results also indicated that this relationship was partially mediated by restricted activities (Sobel's test: Z = 8.72, p<.01), suggesting that ageing-related stressors such as physical decline undermines mental health by disrupting routine normal activities. Our findings suggest that activity restriction is a major factor in poorer mental health outcomes in older adults. As ageing-related physical decline increases, so does activity restriction which, in turn, results in decrements in mental health over time. Interventions focusing on promoting manageable activities considering individual differences in psychosocial resources and/or using compensatory control strategies can be developed to reduce activity restriction. For example, programs designed to foster strategies such as social support resources and social integration (e.g., free or low-cost bus service to visit friends and family, more participatory activities arranged in community halls etc.) may improve mental health among the elderly with perceived low social support.