Purpose The present study aimed to investigate how the interpersonal (experienced discrimination) and intrapersonal (anticipated stigma and internalized stigma) manifestations of psychiatric stigma may affect engaged living and life satisfaction among people with mental illness. In this study, we developed and evaluated a conceptual model to clarify how experienced discrimination may lead to anticipated stigma and internalized stigma and thereby impede engaged living and reduce life satisfaction. Methods A total of 205 Hong Kong Chinese people with mental illness completed standardized questionnaire measures of experienced discrimination, anticipated stigma, internalized stigma, engaged living, and life satisfaction. The associations among these variables were analyzed using path analyses and bootstrap analyses. Results Path analyses showed that experienced discrimination was related to higher levels of anticipated stigma and internalized stigma, which were, in turn, linked to lesser engaged living and consequently lower life satisfaction. Bootstrap analyses further revealed that experienced discrimination had significant indirect effects on life satisfaction via anticipated stigma and engaged living and via internalized stigma and engaged living. Conclusions Theoretically, our study uncovers how the interpersonal and intrapersonal manifestations of psychiatric stigma may adversely affect engaged living and life satisfaction among people with mental illness. Practically, our study points to the importance of developing and implementing stigma-related interventions at societal and individual levels in order to enable people with mental illness to live fulfilling and satisfying lives.