Does prison cause mental health problems among inmates and their family members? Correlational evidence shows that the prevalence of mental health problems is much higher in the inmate population than in the general population, but it remains silent on causality. We exploit the strengths of the Norwegian setting and the richness of the data to accurately measure the impacts of incarceration on the health of the defendants and their family members. First, we use an event-study design around the case decision event. The event study is complemented with an instrumental variable (IV) strategy that takes advantage of the random assignment of criminal cases to judges who differ in their stringency. Both methods consistently show that the positive correlation is misleading: incarceration lowers the prevalence of mental health disorders among defendants as measured by mental-health related visits to health care professionals. We further demonstrate that this effect lasts long after release and is unlikely to be driven by a shift in health care demand. Family members also experience positive spillovers on their mental health, especially spouses.