Biased stress appraisals critically relate to the origins and temporal course of many—perhaps most—forms of psychopathology. We hypothesized that aberrant stress appraisals are linked directly to latent internalizing and externalizing traits that, in turn, predispose to multiple disorders. A high-risk community sample of 815 adolescents underwent semistructured interviews to assess clinical disorders and naturalistic stressors at ages 15 and 20. Participants and blind rating teams separately evaluated the threat associated with acute stressors occurring in the past year, and an appraisal bias index (i.e., discrepancy between subjective and team-rated threat) was generated. A 2-factor (Internalizing and Externalizing) latent variable model provided an excellent fit to the diagnostic correlations. After adjusting for the covariation between the factors, adolescents’ threat overestimation prospectively predicted higher standing on Internalizing, whereas threat underestimation prospectively predicted elevations on Externalizing. Cross-sectional analyses replicated this pattern in early adulthood. Appraisals were not related to the residual portions of any diagnosis in the latent variable model, suggesting that the transdiagnostic dimensions mediated the connections between stress appraisal bias and disorder entities. We discuss implications for enhancing the efficiency of emerging research on the stress response and speculate how these findings, if replicated, might guide refinements to psychological treatments for stress-linked disorders.