Income inequality, a structural property of societies characterized by the unequal distribution of resources, is associated with adverse mental health outcomes during adolescence, which is a sensitive period of neurodevelopment. While previous research has explored the impact of individual-level socioeconomic factors on brain structure and function, the neurobiological mechanisms linking structural inequality to mental health disparities remain poorly understood. Here, using data from the Adolescent Brain Cognitive Development study, we investigated the associations between state-level income inequality, indexed by the Gini coefficient, and brain structure and functional connectivity in over 8,000 children aged 9–10 years (from 17 states in the USA). We analyzed whole-brain cortical thickness and surface area, and volume and region-specific measures of thickness and surface area, as well as functional connectivity within and between 12 brain networks, controlling for several individual-level and state-level confounders (for example, income, educational attainment, state-level incarceration rate and Medicaid expansion status). Mediation analyses were conducted to test whether brain metrics linked income inequality to mental health outcomes at 6-month and 18-month follow-ups. Higher income inequality was associated with reduced cortical thickness and surface area across widespread brain regions, as well as altered functional connectivity between multiple brain networks. Lower cortical volume and surface area, as well as connectivity between the default mode and dorsal attention networks, mediated the association between higher structural income inequality and greater mental health problems. Our findings reveal income inequality as a unique societal-level determinant of neurodevelopment and mental health, independent of individual socioeconomic status. Policies aimed at reducing inequality and strengthening social cohesion to mitigate its neurobiological and mental health impacts are needed.