A number of studies have reported significant associations between obesity and poor psychological wellbeing in children but findings have been inconsistent. Methods: This study utilised data from 3,898 children aged 5-16 years obtained from the Health Survey for England 2007. Information was available on Body Mass Index (BMI), parental ratings of child emotional and behavioural health (Strengths and Difficulties Questionnaire), self-reported physical activity levels and sociodemographic variables. A multilevel modelling approach was used to allow for the clustering of children within households. Results: Curvilinear relationships between both internalising (emotional) and externalising (behavioural) symptoms and adjusted BMI were observed. After adjusting for potential confounders the relationships between obesity and psychological adjustment (reported externalising and internalising symptoms) remained statistically significant. Being overweight, rather than obese, had no impact on overall reported mental health. 17% of children with obesity were above the suggested screening threshold for emotional problems, compared to 9% of non-obese children. Allowing for clustering and potential confounding variables children classified as obese had an odds ratio (OR) of 2.13 (95% CI 1.39 to 3.26) for being above the screening threshold for an emotional disorder compared to non-obese young people. No cross-level interactions between household income and the relationships between obesity and internalising or externalising symptoms were observed. Conclusions: In this large, representative, UK-based community sample a curvilinear association with emotional wellbeing was observed for adjusted BMI suggesting the possibility of a threshold effect. Further research could focus on exploring causal relationships and developing targeted interventions.