Background: Despite numerous efforts to assess the impact of the COVID-19 pandemic on mental health, there are few longitudinal studies that examine the change in the burden of psychological distress over time and its associated factors, especially in developing countries. Objective: The primary aim of this study was to assess the levels of psychological distress at two time points during the COVID-19 outbreak based on a representative community sample in Chile. The secondary aim was to identify groups that are more vulnerable to psychological distress during the pandemic. Methods: A nationally representative, longitudinal telephone survey of Chilean adults was conducted. This study analyses panel data from two waves in 2020: May 30 to June 10 and September 15 to October 9. A total of 823 people participated in both surveys. Changes in mental health outcomes (anxiety and depressive symptoms) were assessed, estimating the effect of demographic characteristics, psychosocial and economic factors, household conditions, and health status. Results: There was a significant increase in psychological distress (PHQ-4 ≥ 6) between Waves 1 (22.6%) and 2 (27.0%), especially among younger participants. Overall, the results of this study show that being female, living in or near the capital, living in overcrowded households and having a perceived lack of space in the home, loneliness or perceived social isolation, and having received mental health treatment within the last year are significantly associated with psychological distress over time (p < 0.05). Conclusion: This study highlights the need to implement psychosocial programs to protect people's psychological well-being, as well as social policies to improve household living conditions and levels of social connectedness during the COVID-19 outbreak.