BACKGROUND: Transgender women are disproportionately incarcerated in the US relative to the general population. A dearth of research has explored the factors that predict incarceration among transgender women or the longitudinal impact of incarceration on the health of this population. METHODS: Between 2012 and 2015, 221 transgender women ages 16-29 from Boston, MA and Chicago, IL were prospectively assessed at baseline, 4, 8 and 12 months. Mixed effects models were used to identify risk factors for incarceration and examine whether incarceration predicts somatic, anxiety and depressive symptoms, illicit drug use, and binge drinking over time, controlling for baseline psychiatric and substance use disorders. RESULTS: Overall, 38% experienced incarceration, before (33%) and during (18%) the study period. Significant independent predictors of recent incarceration included sex work, recent homelessness, school dropout and number of times incarcerated prior to enrollment while recent incarceration significantly predicted somatic symptoms and illicit drug use over time. CONCLUSIONS: Incarceration burden is high in young transgender women. Both structural and individual risk factors predict incarceration and poor health, suggesting the need for multilevel interventions to prevent incarceration and support young transgender women during incarceration and upon release.