Social media applications are increasingly prominent among youth. This systematic review provides a comprehensive assessment of the literature on the relationship between active social media use, sleep quality, and common mental health outcomes (anxiety, depression, and psychological distress) among youth. MEDLINE, PsychINFO, EMBASE and Scopus were searched for observational studies investigating this relationship among youth (aged 16–25). Thirty-six cross-sectional studies and six prospective cohort studies met the inclusion criteria. Among cross-sectional studies, significant associations between excessive social media use with poor mental health outcomes (n = 33), poor sleep quality (n = 24), and significant associations between poor sleep quality and negative mental health (n = 16) were found. In longitudinal studies, frequent social media use was a risk factor for both poor mental health (n = 6) and poor sleep outcomes (n = 5). Some studies showed sleep quality mediating the relationship between social media use and negative mental health outcomes in youth. Overall, included evidence links excessive social media use to poor sleep quality and negative mental health in youth. Given the public health implications of sleep problems, excessive social media use warrants further investigation to clarify the directionality and strength of their associations with poor sleep quality and negative mental health outcomes.