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Social engagement and social isolation are key determinants of mental health in older age, yet there is limited evidence on how public policies may contribute to reducing isolation, promoting social engagement and improving mental health among older people. This study examines the impact of the introduction of an age-friendly transportation policy, free bus passes, on the mental health of older people in England.We use an instrumental variable (IV) approach that exploits eligibility criteria for free bus passes to estimate the impact of increased public transportation use on depressive symptoms, loneliness, social isolation and social engagement.Eligibility for the free bus travel pass was associated with an 8% (95% CI 6.4% to 9.6%) increase in the use of public transportation among older people. The IV model suggests that using public transport reduces depressive symptoms by 0.952 points (95% CI −1.712 to −0.192) on the Center for Epidemiologic Studies Depression Scale. IV models also suggest that using public transport reduces feelings of loneliness (β −0.794, 95% CI −1.528 to −0.061), increases volunteering at least monthly (β 0.237, 95% CI 0.059 to 0.414) and increases having regular contact with children (β 0.480, 95% CI 0.208 to 0.752) and friends (β 0.311, 95% CI 0.109 to 0.513).Free bus travel is associated with reductions in depressive symptoms and feelings of loneliness among older people. Transportation policies may increase older people’s social engagement and consequently deliver significant benefits to mental health.