Leprosy is a chronic disease that leads to physical disability as a result of nerve damage. Stigma and associated psychosocial problems are common and may increase the risk of mental disorders. This study was conducted to estimate the prevalence of mental distress amongst people attending a Specialized Leprosy and Dermatology Hospital, ALERT, Addis Ababa. Alternate patients from the daily register of outpatients were interviewed for symptoms of mental distress using the Self Reporting Questionnaire (SRQ). This questionnaire was administered by two specially trained nurses. The study population consisted of 786 people. Of these, 60% had leprosy and the remainder had other skin diseases. The sex distribution of the study population was approximately equal. The overall prevalence of mental distress was found to be 34.6%. Among people with leprosy the prevalence was 52.4%, compared with 7.9% in those with other skin conditions. This represented a 7-fold increased risk of mental distress in people with leprosy, adjusted OR = 7.14 (95% CI; 4.15, 12.35). Physical disability was also strongly associated with mental distress. This study showed that the 1-month prevalence of mental distress was significantly higher in patients with leprosy compared to patients with other dermatological conditions. Such a study allows identification of non-specific mental distress. Thus, future work should be directed at further characterizing the nature and severity of mental disorder in this group. However, our study has indicated a need for the integration of psychosocial care into our current medical treatment of patients with leprosy.