<p>The escalating threat of depression demands urgent action from the research community. As a policy that prioritizes a people-centered approach, the New-type Urbanization Policy (NTU) holds promise for alleviating depression. However, whether and how NTU positively affects individual mental health remains underexplored. This study draws on three waves of data from the China Health and Retirement Longitudinal Survey (CHARLS) and employs the difference-in-differences (DID) method as a quasi-natural experiment to empirically analyze the effects of NTU on individual depression. The results indicate that NTU significantly reduces depression, with environmental pollution serving as a mediator in this relationship. Moreover, NTU’s impact on depression reduction is more pronounced in non-resource-based cities and those with lower population concentration. Additionally, the ecosocial theory emphasizes that health arises from the biological embodiment of structural exposures embedded in social and ecological environments. Based on this theory, it serves as a theoretical framework for analyzing NTU’s impact on depression. This study expands the existing research on pilot policies related to individual health and provides concrete policy recommendations for mitigating depression in the context of NTU implementation.</p>