Paternity leave has the potential to help parents by enabling new fathers to spend time with their families. However, existing evidence about its association with parental mental health and wellbeing is mixed. This study used data from Understanding Society, a national UK household survey, to examine uptake of paternity leave and its association with measures of mental health and wellbeing for fathers (n = 1385) and mothers (n = 1384) of infants born 2009–2019. We used logistic regression to explore paternity leave uptake and inverse probability weighted regression adjustment (IPWRA) to estimate the association between paternity leave uptake and the mental wellbeing (Short Form-12 Mental Component Score (SF-12 MCS)) and mental health (General Health Questionnaire-12 (GHQ-12) caseness) of fathers and mothers in the months after the birth of their child. Odds of taking paternity leave were higher for more educated fathers and those born in the UK. After adjusting for potential confounders, we found no strong evidence of association between paternity leave and mental wellbeing or mental health of mothers or fathers in our overall sample. This finding was robust to a range of sensitivity analyses including alternative model specifications, imputation of missing data, and weighting. However, subgroup analysis showed that fathers with above median household incomes had better mental wellbeing if they took paternity leave (1.43-point difference in SF-12 MCS; 95 % CI 0.25,2.62; p = 0.02). Improved policies are needed to ensure parental leave reduces inequalities in mental health and wellbeing.