In this study, we draw on quantitative survey data and qualitative interview data to understand the emergence, experiences, and well-being implications of stigma and discrimination during China’s COVID-19 outbreak. We first draw on an experiment component embedded in the national survey to empirically establish the existence of stigma during the outbreak. Drawing on stigma theory and social stress process theory, we then use survey data to show the differential exposure to discrimination and quantify the role of perceived discrimination in shaping mental health and explaining region-based and COVID-19-infection-status-based disparities in mental health. Finally, we use interview data to illuminate how discrimination and stigma were actually perceived and experienced by individuals living in the original epicenter Wuhan. This study illustrates that the COVID-19 outbreak has activated, reproduced, and exacerbated certain forms of stigma and discrimination that existed long before the crisis, while producing new forms of stigma and discrimination directly related to COVID-19. By revealing the critical role of perceived discrimination in mental health, it also offers much-needed knowledge for designing post-pandemic recovery interventions.