An ethnic group that lives in a neighbourhood in which it is in the minority, termed ‘lower ethnic density,’ tends to report a higher incidence of mental ill-health. This population-based study investigated for the first time the existence of an own-group density effect among Catholic and Protestant communities in Northern Ireland. The entire Northern Ireland born Catholic and Protestant working age (n = 1, 004,060) enumerated population in the 2011 Census of Northern Ireland were included in the study via administrative data-linkage methodology. Catholics had a greater likelihood of reporting mental ill health in neighbourhoods with the largest proportion of Catholics (OR = 1.25, 95%CI 1.07–1.47), whereas mental health among Protestants was not associated with neighbourhood proportion of Protestants, after adjusting for socio-economic status and neighbourhood deprivation. The results indicate that a complex relationship exists between group identity, population composition of ethnic and religious groups and prevalence of community mental health.