Despite accumulating evidence, previous studies have not clearly separated the contribution of community-level social capital on mental health from that of individual-level social support. We examined the association between community-level social capital and psychological distress in a sample of older Japanese individuals, taking into account the effects of individual-level social capital and social support. We collected data via a cross-sectional survey among all residents aged >= 65 in three rural municipalities in Okayama Prefecture. We measured two components of social capital in the questionnaire: perceptions of trust and reciprocity in the community. Community-level social capital was obtained by aggregating individual responses and calculating the proportion of subjects reporting mistrust and lack of reciprocity. Psychological distress was assessed by the Kessler Psychological Distress scale. We calculated risk ratios (RRs) and 95% confidence intervals (CIs) for psychological distress using two-level Poisson regression models (9,761 individuals nested within 35 communities). The prevalence of psychological distress was 39.8%. Low community-level social capital was associated with psychological distress, even after controlling for individual-level social support, age, sex, educational attainment, frequency of alcohol consumption, smoking status, body mass index, marital status, socioeconomic status, and number of cohabiters. The adjusted RRs per 10% increase of the proportion of mistrust and lack of reciprocity in the communities were 1.23 (95% CI: 1.01-1.51) and 1.12 (95% CI: 1.02-1.24), respectively. Lower levels of community-level social capital are associated with psychological distress among the Japanese elderly population, even after adjusting for individual- level perceptions of social capital and social support.