Little is known about the potential effects of neighbourhood environment on positive mental health in older people. We examined cross-sectional associations between the index of multiple deprivation score of the census area of residence, perceptions of neighbourhood cohesion and neighbourhood problems and mental wellbeing, as measured by the Warwick-Edinburgh Mental Wellbeing Scale, in 1157 men and women aged 69-78 years from Hertfordshire, UK. We found no association between area-level deprivation and mental wellbeing. People who felt a stronger sense of cohesion within their neighbourhood and reported fewer neighbourhood problems had higher levels of mental wellbeing, independently of social class, income, presence of limiting illness or disability, mobility problems, and perceived social support. Adjustment for emotional stability attenuated the associations between mental wellbeing and both of these measures of perceived neighbourhood environment, particularly in the case of neighbourhood problems. How older people feel about their neighbourhood may be important for positive mental health in later life.