Objective: To examine the association between PSC and psychological distress, and decompose this relationship into direct, indirect and interaction pathways involving workplace MH stigma. Method: A cross-sectional survey assessed 999 Canadian workers. Mediation was explored using a model-based potential outcomes approach, while moderation was analysed via logistic regression. Results: The risk difference in psychological distress between high- and low-risk PSC environments was 0.122. Of this effect, 66.7% was direct, 12.9% was mediated by stigma, and 20.4% reflected PSC–stigma interaction. The stigma–distress association was stronger in high-risk PSC environments (OR = 3.58 [1.91–6.70]) than in low-risk environments (OR = 2.10 [1.04–4.23]). Conclusions: The majority of the association between PSC and distress is not via MH stigma, while the strength of the stigma–distress association varied by PSC level.