The tendency for blacks to report similar or better mental health than whites has served as an enduring paradox in the mental health literature for the past three decades. However, a debate persists about the mechanisms that underlie this paradox. Drawing on the stress process framework, we consider the counterbalancing roles of self-esteem and traumatic stress exposure in understanding the “black-white paradox” among U.S. adolescents. Using nationally representative data, we observe that blacks have higher levels of self-esteem than whites but also encounter higher levels of traumatic stress exposure. Adjusting for self-esteem reveals a net higher rate of mood disorders and distress among blacks relative to whites, and differences in traumatic stress exposure mediate this association. In the full model, we show that self-esteem and stress exposure offset each other, resulting in a null association between race and mood disorders and a reduced association between race and distress.