This study examined the effect of academic competition and individuals’ academic competency and coping strategy on psychological distress among third-year students in senior high school. Data from the third and fourth wave of the Taiwan Education Panel Survey were used for this study. We excluded participants without complete responses and classes with less than five students taking part in this survey. There were 1,181 classes and over 15,000 students included in this study. Academic competition was defined operationally as class competition structure and classroom competition aura. Explorative factor analysis showed that class competition structure was composed of academic performance ranking, testing frequency, and misappropriation of deputy subjects time to main subjects. Classroom competition aura was represented by classmates’ educational expectation, academic competency, and coping strategies. First, hierarchical linear modeling was conducted, and it was found that after controlling for psychological distress in students’ second year, class competition structure and classmates’ coping strategies positively predicted psychological distress in the third year. Second, students with poor mental health in their second year experienced worsened psychological distress in their third year due to class competition structure. Third, students’ academic competency did not predict their psychological distress, and class competition structure did not moderate the prediction. Fourth, individuals’ educational expectation and coping strategy positively predicted their own psychological distress. The higher the educational expectation that peers had concerning future career, the more the individuals’ educational expectation negatively predicted their psychological distress. Future research and practical guidance are also suggested.