Existing studies of the health effects of urban form have focused overwhelmingly on physical health. The potential role of neighborhood environment in promoting people’s positive mental wellbeing is understudied. The purpose of this study is to partially fill this gap. Based on a survey of 712 residents in 16 typical neighborhoods in Beijing, China, we develop hierarchical multilevel models to analyze the association between observed and perceived neighborhood environment (physical and social) and residents’ mental wellbeing, controlling for their general health status, personal characteristics, and housing conditions. We find that among the five observed neighborhood characteristics (floor area ratio, building coverage ratio, mixed land use, neighborhood size, and proximity to an urban park), proximity to an urban park is the only one that shows a significant and positive effect on subjective wellbeing. General neighborhood satisfaction has a significant and positive association with residents’ mental wellbeing. Such a positive association, however, turns marginally significant when observed neighborhood environment is controlled for in the model. We find a significant and positive association between perceived neighborhood social environment (particularly harmonious interpersonal relationship between neighbors) and mental wellbeing. The association between neighborhood social environment and mental wellbeing is weaker in newer neighborhoods that were built after 2000. Moreover, the strength of social capital tends to decline from older to newer residential neighborhoods. In general, neighborhood environment plays a significant but minor role in explaining people’s subjective wellbeing. Personal health status and demographic characteristics are more powerful in explaining the variation among people’s subjective wellbeing.