Background: The child mental health epidemiology literature focuses almost exclusively on reporting the prevalence and predictors of child mental disorders. However, there is growing recognition of positive mental health or mental health competence as an independent outcome that cannot be inferred from the absence of problems, and requires epidemiological investigation in its own right. Methods: We developed a novel measure of child mental health competence within the framework of the Australian Early Development Index, a three-yearly national census of early child development. Predictors of this outcome were investigated by linking these census data at individual level to detailed background information collected by a large longitudinal cohort study. Results: Predictors of competence were consistent with previously described theoretical and empirical models. Overall, boys were significantly less likely than girls to demonstrate a high level of competence (OR 0.60, 95% CI 0.39 to 0.91). Other strong predictors of competence were parent education and a relative absence of maternal psychological distress; these factors also appeared to attenuate the negative effect of family hardship on child competence. Conclusions: This measure of mental health competence shows promise as a population-level indicator with the potential benefit of informing and evaluating evidence-based public health intervention strategies that promote positive mental health.