Although residential crowding has many well-being implications, its connection to mental health is yet to be widely examined. Using survey data from 1613 residents in Beijing, China, we find that living in a crowded place - measured by both square metres per person and persons per bedroom - is significantly associated with a higher risk of depression. We test for the mechanisms of such associations and find that the residential crowding-depression link arises through increased living space-specific stress rather than increased life stress. We also identify the following subgroups that have relatively stronger residential crowding-depression associations: females, those living with children, those not living with parents, and those living in non-market housing units. Our findings show that inequality in living space among urban residents not only is an important social justice issue but also has health implications.