Background While effective lay-health worker models for mental health care have been demonstrated through efficacy trials, there is limited evidence of the effectiveness of these models implemented in rural LMIC settings. Aim To evaluate the impact of a volunteer community-led intervention on reduction in depression and anxiety symptoms and improvement in functioning, and social participation among people living in rural Gujarat, India. Methods Stepped-wedge cluster randomized controlled trial was used to assess the effectiveness of delivery of psychosocial intervention across 645 villages in Mehsana district of Gujarat, India between April 2017 and August 2019. The primary outcome was an improvement in depression and/or anxiety symptoms assessed using GHQ-12 at 3-month follow-up. Secondary outcomes were improvement in (a) depression and anxiety (Patient Health Questionnaire, (PHQ-9), Generalized Anxiety Disorder (GAD-7) & Self-Reporting Questionnaire-20 (SRQ-20); b) quality of life (EQ- 5D); c) functioning (WHO-DAS-12), and social participation (Social Participation Scale SPS). Generalized linear mixed-effects models were used to assess the independent effect of the intervention. Results Out of a total of 1191 trial participants (608- intervention & 583-control), 1014 (85%) completed 3-month follow-up. In an adjusted analysis, participants in the intervention condition showed significant recovery from symptoms of depression or anxiety (OR 2.2; 95% CI 1.2 to 4.6; p<0.05) at the end of 3-months, with effects sustained at 8-month follow-up (OR 3.0; 95% CI 1.6 to 5.9). Intervention participants had improved scores on the PHQ-9 (Adjusted mean difference (AMD) –1.8; 95%CI -3.0 to -0.6), and SRQ-20 (AMD -1.7; 95%CI -2.7 to -0.6), at 3-months and PHQ-9, GAD-7, SRQ-20, EQ-5D and WHO-DAS at 8 months follow-up. Conclusion Findings suggest that Atmiyata had a significant effect on recovery from symptoms of depression and anxiety with sustained effects at 8-month follow-up. Trial registration Trial registration details. The trial was registered prospectively with the “Clinical Trial Registry in India” (registry number: CTRI/2017/03/008139).