AIMS: The mental health of individuals who have been forcibly displaced can be impacted both by war-related traumatic events and displacement-related stressors, which arise as a consequence of their migratory journey and subsequent experiences. In addition to focusing on mental disorders, there is a need to explore broader psychosocial outcomes that are important for forcibly displaced people. Our aim is to present a coherent explanatory framework to understand how both past traumatic events and ongoing stressors operating throughout forcibly displaced people's social environment can impact mental health and psychosocial wellbeing. METHODS: We describe the capability approach (CA), a human development framework that foregrounds individuals' freedom to engage in forms of being and doing that are valuable to them. We consider the opportunities that the CA provides for understanding how a myriad of factors can impact forcibly displaced people, and how different forms of support can be configured to meet the needs of particular people and communities. RESULTS: The CA recognises that various factors can share a common putative causal mechanism in their impact on forcibly displaced people, i.e. these factors limit a person's ability to develop capabilities and their freedom to engage in valued forms of being and doing. The rights based ethos of the CA enables multisectoral and coordinated activity, which can be directed towards addressing factors across the social environment. Importantly, the CA helps to explain why particular forms of support may be more beneficial for individuals or communities at certain times compared to others. CONCLUSION: The application of the CA can help to guard against the risk that the aspirations of assessment instruments and interventions aimed at supporting forcibly displaced people are narrowly focused on addressing distress and disorders, to instead adopt a more expansive focus on forcibly displaced people's potential and the possibilities that they wish to realise.