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The objective of this study was to investigate residential exposure to alcohol outlets in relation to alcohol consumption and mental health morbidity (anxiety, stress, and depression). This was a cross-sectional study of 6,837 adults obtained from a population representative sample for the period 2006-2009 in Perth, Western Australia. The number of alcohol outlets was ascertained for a 1600 m service area surrounding the residential address. Zero-inflated negative binomial and logistic regression were used to assess associations with total alcohol consumption, harmful alcohol consumption (7-10 drinks containing 10 g of alcohol for men, 5-6 drinks for women) and medically diagnosed and hospital contacts (for anxiety, stress, and depression), respectively. The rate ratio for the number of days of harmful consumption of alcohol per month and the number of standard drinks of alcohol consumed per drinking day was 1.06 (95% CI: 1.02, 1.11) and 1.01 (95% CI: 1.00, 1.03) for each additional liquor store within a 1600 m service area, respectively. The odds ratio of hospital contact for anxiety, stress, or depression was 1.56 (95% CI: 0.98, 2.49) for those with a liquor store within the service area compared to those without. We observed strong evidence for a small association between residential exposure to liquor stores and harmful consumption of alcohol, and some support for a moderate-sized effect on hospital contacts for anxiety, stress, and depression.