To determine whether psychological distress associated with musculoskeletal injuries sustained in a motor vehicle crash (MVC), regardless of time of onset, impacts compensation outcomes such as claim settlement times and costs. Second, to identify factors routinely collected by insurance companies that contribute to psychological distress during the compensation process.Statewide retrospective study.Analysis of the New South Wales statewide (Australia) injury register for MVC survivors who lodged a compensation claim from 2011 to 2013.6341 adults who sustained a musculoskeletal injury and who settled a claim for injury after an MVC. Participants included those diagnosed with psychological distress (n=607) versus those not (n=5734).Time to settlement and total costs of claims, as well as socio-demographic and injury characteristics that may contribute to elevated psychological distress, such as socio-economic disadvantage, and injury severity.Psychological distress in those with a musculoskeletal injury was associated with significantly longer settlement times (an additional 17 weeks) and considerably higher costs (an additional $A41 575.00 or 4.3 times more expensive). Multivariate logistic regression analysis identified risk factors for psychological distress including being female, social disadvantage, unemployment prior to the claim, not being at fault in the MVC, requiring ambulance transportation and rehabilitation as part of recovery.Results provide compelling evidence that psychological distress has an adverse impact on people with musculoskeletal injury as they progress through compensation. Findings suggest that additional resources should be directed toward claimants who are at risk (eg, the socially disadvantaged or those unemployed prior to the claim), the major aim being to reduce risk of psychological distress, such as post-traumatic stress disorder, and associated risk of increased settlement times and claim costs. Prospective studies are now required that investigate treatment strategies for those at risk of psychological distress associated with an MVC.