Purpose <p>Formaldehyde is a recognized carcinogenic and respiratory irritant. This study explores its associations with psychological distress and sleep quality in occupational settings and examines the potential moderating role of physical activity.</p> Methods <p>In this cross-sectional study of 404 full-time workers across three occupational groups (pathology laboratory technicians, poultry farm workers, and formaldehyde-production facility staff), personal air sampling was conducted over eight hours to measure formaldehyde concentrations (NIOSH Method 3500). Psychological distress was assessed using the 28-item General Health Questionnaire (GHQ-28), sleep quality was evaluated with the Pittsburgh Sleep Quality Index (PSQI), and physical activity levels were determined by the short-form International Physical Activity Questionnaire (IPAQ). Spearman rank correlations, Kruskal–Wallis tests, and linear regression analyses adjusting for demographic and occupational factors were used to examine exposure–response relationships and to test the moderating effect of physical activity.</p> Results <p>Median formaldehyde TWA concentrations were highest in the production facility (<i>p</i> &lt; 0.001). Higher exposure was significantly associated with increased GHQ-28 scores in unadjusted (β = 1.945 per 0.1 ppm; <i>p</i> &lt; 0.001; R² = 0.14) and adjusted models (β = 1.687; <i>p</i> &lt; 0.001). While unadjusted analysis indicated a small effect on PSQI (β = 0.312; <i>p</i> = 0.036), this relationship did not persist after covariate adjustment. Physical activity showed a modest inverse association with GHQ-28 (ρ = − 0.110; <i>p</i> = 0.032) but did not significantly moderate the impact of formaldehyde on distress or sleep (interaction <i>p</i> &gt; 0.15).</p> Conclusion <p>Occupational formaldehyde exposure is associated with increased psychological distress, with minimal impact on sleep quality. These findings support the inclusion of neurobehavioral endpoints in occupational exposure guidelines.</p>