Abstract Background The main objective of this study was to determine the prevalence and factors associated with mental illness in Oyo State at community level using the general health questionnaire as a screening tool. Method This cross-sectional, community- based survey was carried out among adults in three randomly selected LGAs using multi-stage sampling technique. Results A total of 1105 respondents were assessed in all. The overall prevalence of psychiatric morbidity in Oyo state Nigeria was found to be 21.9%, (18.4% in the urban areas and 28.4% in the rural areas, p = 0.005). Young age ≤ 19 yrs (X2 = 20.41, p = 0.00013), Unemployment (X2 = 11.86 p = 0.0005), living condition below average (X2 = 12.21, p = 0.00047), physical health (X2 = 6.07, p = 0.014), and large family size (X2 = 14.09 p = 0.00017) were associated with increase risk for psychiatric morbidity. Following logistic regression analysis, Unemployment (C.I = 1.18–3.70, OR -2.1) and living conditions perceived to be above average (C.I = 1.99–5.50, OR-3.3) were significant predictors of mental illness while family size less than 6 (C.I = 0.86–0.97, OR-0.91) was protective. Conclusion The teenagers and the rural populations are in greater need of mental health promotional services. Family planning should be made freely available in order to reduce the family size and hence incidence of mental illness in the African population.