Education is one of the most important social determinants of mental health. Many studies have shown that overeducation has different and complex correlations with mental health status under different circumstances. However, few studies have compared overeducation and undereducation in the Chinese context to illustrate their different associations with mental health. Our study attempts to evaluate the potential association between educational mismatch and workers' mental health in China by subdividing educational mismatch into overeducation and undereducation. By using the 2020 Chinese Family Panel Survey (CFPS) data, we screened out 7225 valid cross-sectional samples and used an ordered logit model to identify the association between educational mismatch and mental health. The findings show that overeducation is strongly associated with better psychological status, while undereducation is significantly associated with worsening psychological status. The mediating effect test shows that income satisfaction has penalty and premium effects respectively in different contexts. In addition, we found that undereducation was not significantly associated with worse psychological status in the lower job satisfaction and stable employment groups, whereas overeducation was not significantly associated with better psychological status only in precarious employment. Our research provides evidence that developing policies and interventions to improve national education can help improve national health.