Background: Introduction: Urban noise pollution is a growing environmental concern with potential consequences on mental health. Although previous studies have highlighted its physiological effects, there is limited data on its psychiatric impact in densely populated Indian cities. To assess the association between environmental noise exposure and psychological distress, depression, anxiety, and sleep quality among urban residents in Hyderabad. Material and Methods: A cross-sectional study was conducted in 2023 at the Department of Psychiatry, Gandhi Medical College, Hyderabad, involving 1200 adult participants. Ambient noise levels were measured using a portable sound level meter and categorized as low (<55 dB), moderate (55–70 dB), and high (>70 dB). Psychological assessments included GHQ-28, PHQ-9, GAD-7, and PSQI. Statistical analyses included chi-square tests, Pearson’s correlation, and multiple logistic regression. Results: Among participants, 43% reported psychological distress (GHQ-28 ≥5), 33.5% had moderate to severe depression, 31% had moderate to severe anxiety, and 61.5% had poor sleep quality. Psychological distress was significantly higher in the high noise exposure group (59%) compared to moderate (41.8%) and low (29.8%) groups (χ² = 25.74, p < 0.001). High noise exposure was associated with increased odds of psychological distress (OR = 2.34, 95% CI: 1.65–3.30, p < 0.001), and poor sleep quality emerged as an independent predictor (OR = 2.81, 95% CI: 2.07–3.82, p < 0.001). PHQ-9 and GAD-7 scores were positively correlated with PSQI and GHQ-28 (p < 0.001). Conclusion: Urban noise exposure is significantly associated with psychological distress, depression, anxiety, and poor sleep quality. High noise levels and disturbed sleep were the strongest predictors of mental health issues. These findings highlight the need for public health interventions, noise regulation, and mental health support in urban settings.