Mental ill-health prolongs and complicates other chronic illnesses, which is a major public health concern because of the potential stress it places on health systems. Prevention via active aging and place-based interventions thus became increasingly important with population aging, e.g., through health promotion and age-friendly neighborhoods. However, how the targeted outcomes of these efforts are related remains unclear. This paper examined whether the relationship between active living and mental health or health-related quality of life is mediated by neighborhood cohesion. Cross-sectional data were drawn from n = 270 community-dwelling adults aged 50 and above in the Gerontology Research Program—Center for Ageing Research in the Environment (GRP-CARE) Survey. Path analysis showed that one can live actively for better mental health (Btotal = 0.24), but it is largely mediated by neighborhood cohesion (37%). Further examination of the factors of neighborhood cohesion showed that this mediation is explained by communal affordance (Bindirect = 0.05) and neighborhood friendship (Bindirect = 0.05). Additional study of the association between these mediators and factors of mental health revealed two psychosocial processes: (1) better community spaces (e.g., greenery and third places) support communal living (B = 0.36) and help older adults obtain emotional support (B = 0.32) for greater autonomy (B = 0.25); (2) spending more time outdoors enhances neighborhood friendship (B = 0.33) and interpersonal skills (B = 0.37), which in turn improves coping (B = 0.39). In short, the effects of active living on health are limited by one’s neighborhood environment. Neighborhood cohesion must be considered or it may stifle individual and policy efforts to age actively and healthily in urban environments. Context-sensitive implementations are required.