Objective: PTSD and depression are related to perceived physical health impairment in veterans, but little is known about the effects of psychological treatment on impairment. We examined the impact of an interactive online treatment for veterans with trauma-related distress, including (a) whether treatment effects include reduced perceived physical impairment, and (b) how these treatment effects are related to symptoms of PTSD and depression. Method: A randomized controlled trial assessed the impact on perceived physical health impairment of interactive online treatment for veterans with symptoms of PTSD and depression. Veterans were randomized to either the Vets Prevail program (n = 209), or a no-treatment control (n = 94) completing measures of depression and PTSD symptomology as well as perceived physical health impairment at 6 and 12 weeks following baseline assessment We conducted a series of multiple and single mediation analyses to examine how the effects of Vets Prevail on these outcomes are related. Results: Compared with control, Vets Prevail was (a) associated with significant reductions in perceived physical health impairment, and (b) this relationship was mediated by reductions in symptoms of PTSD, but not depression. Further analysis showed that perceived physical health impairment also mediated the relationships between intervention and PTSD and depression symptoms. Conclusions: Findings indicate that Vets Prevail reduces perceptions of physical health impairment by reducing PTSD symptomology. It is also possible that treatment initiated more complex, bidirectional relationships such that improvements in psychological distress and in perceived physical health impairment reinforced each other over time. Findings demonstrate that Vets Prevail may help veterans overcome traditional barriers to care and achieve improvements in multiple areas of functioning.