Background: Pegylated interferon (PEG-IFN) treatment for hepatitis C virus (HCV) infection has neuropsychiatric side effects. Data on the impact of HCV treatment on mental health among injecting drug users (IDUs) are limited. We assessed mental health during treatment of recently acquired HCV, within a predominantly IDU population. Methods: Participants with HCV received PEG-IFN alpha-2a (180microg/week) for 24 weeks; HCV/HIV received PEG-IFN with ribavirin. Depression was assessed using the Mini-International Neuropsychiatric Interview (MINI). Logistic regression was used to identify factors associated with depression at enrolment and during treatment. Also, the impact of depression prior to and during treatment on SVR was assessed. Results: Of 163 participants, 111 received treatment (HCV, n = 74; HCV/HIV, n = 37), with 76% ever reporting IDU. At enrolment, 16% had depression (n = 25). In adjusted analysis, depression at enrolment occurred less often in participants full-/part-time employed (AOR 0.23; 95% CI: 0.06, 0.82, P = 0.023) and more often in recent IDUs (AOR 3.04; 95% CI: 1.19, 7.72, P = 0.019). During treatment, 35% (n = 31) developed new-onset depression. In adjusted analysis, poorer social functioning (higher score) was associated with new-onset depression (score < 9 vs. score > 17; OR 5.69; 95% CI: 1.61, 20.14, P= 0.007). SVR was similar among participants with and without depression at enrolment (60% vs. 61%, P= 0.951) and in those with and without new-onset depression (74% vs. 63%, P= 0.293). Conclusions: Although depression at enrolment and during treatment was common among participants with recent HCV, neither impacted SVR. Participants with poor social functioning may be most at risk of developing depression during HCV therapy.