•A cohort study was conducted among a representative sample of preschool children who experienced lockdown and home confinement in Shanghai during the first wave of the COVID-19 pandemic.•Compared with a pre-pandemic cohort of preschoolers, experiencing a two-month strict lockdown was associated with a 3.1% increase in the prevalence of being at risk for mental health disorders among preschool children.•Children of parents with lower levels of education were more likely to be at risk for mental health problems associated with the lockdown.•Preschool children had longer screen time and daytime sleep duration and experienced a worse family environment during the lockdown. From January 24, 2020, to March 24, 2020, during the first wave of the COVID-19 pandemic, Shanghai implemented lockdown measures to stop transmission of the virus. Over 26 million residents, including 0.8 million children aged 3–6, were confined at home. The present study leveraged a city-wide cohort study of preschool children in Shanghai—the Shanghai Children’s Health, Education and Lifestyle Evaluation, Preschool (SCHEDULE-P) study—and used a quasi-experimental design to study the impact of lockdown on preschool children’s mental health and changes in their home environment and lifestyles. Two cohorts—the pre-pandemic cohort and the pandemic cohort—were investigated and compared using the difference-in-differences estimation framework. The Strengths and Difficulties Questionnaire was used to screen children who were at risk for mental health distress. The Index of Child Care Environment questionnaire was used to evaluate the quality and quantity of stimulation and support available to children in their family environment. Children’s screen time, sleep duration, and household socioeconomic status were also queried. All measures were reported by parents. The results showed that having experienced lockdown and home confinement was associated with a 3.1% (95% confidence interval CI: 1.9% to 4.4%) increase in the percentage of children at risk for mental health distress, was associated with longer screen time (21.2 min/day, 95% CI: 17.8–24.6), longer sleep duration (15.7 min/day, 95% CI: 14.0, 17.4), and a less favorable family environment. Children of parents with lower levels of education were more likely to experience mental health challenges associated with the lockdown. The study was limited by relying on parents as informants for measuring the key variables. Since both parents and children experienced lockdown, this hindered our ability to isolate the impact of lockdowns solely on children. In summary, the study provides evidence on the influence of lockdown measures on mental health and well-being among young children. Authorities need to manage the risks and consider long-term consequences when issuing measures to contain COVID-19 transmission.