Background Digital mental health tools can promote access to culturally safe early intervention mental health services for Aboriginal and Torres Strait Islander young people. Participatory design methodology facilitates user engagement in the co-design of digital resources. However, several challenges have been identified that limit the methodological rigor of this approach. Objective This paper aims to present an in-depth account of the second phase of participatory design in the development of the Aboriginal and Islander Mental Health Initiative for Youth (AIMhi-Y) app. Methods A first idea storyboard, generated from a formative phase of the AIMhi-Y project, was refined through a series of youth co-design workshops and meetings. A narrative review of the literature, 6 service provider interviews, and engagement with an expert reference group also informed the design process. Generative design activities, storyboarding, discussions, and voting strategies were used. Results The participatory design process identified the app features preferred by young people and service providers and assessed their alignment with current recommendations from the scientific literature. Findings from the co-design process are presented across 9 app characteristic domains. Integration of findings into app design proved complex. Although most preferred features identified by young people were included to some degree, other inclusions were restricted by budget, time, and the need to integrate best practice recommendations. A process of prioritization was required. Conclusions Participatory design is often cited in the development of digital mental health resources; however, methods are diverse and often lack detailed descriptions. This study reports the outcomes and strategies used to determine priorities in the second phase of the development of the AIMhi-Y app. We provide an example and the key learnings to inform others seeking to use participatory design with a similar cohort.