In one of the first studies of its kind, Australian National University researchers have found 30 per cent of Indigenous adults experience high levels of psychological distress compared to 13 per cent of non-Indigenous adults.
They found about 47 per cent of the gap between the two demographics was likely to be caused by different types of interpersonal racial discrimination.
These include those in everyday interactions, such as being treated with less respect by others or being unfairly targeted by police.
The study's co-author, adjunct professor Janine Mohamed, said eliminating discrimination would help alleviate the higher burden of psychological distress experienced.
"The potential harms from discrimination and racism must be recognised if we are to leverage policy reform that impacts the health of our peoples," she said.
"All levels of government have committed to work to eliminate racism under the 2021 national agreement on closing the gap - we are calling on policymakers, organisations and individuals to honour the national agreement and to make real change."
The findings of the research were based on submissions from 10,000 Indigenous adults in the Mayi Kuwayu study, a national examination of Indigenous wellbeing.
Dr Katie Thurber, one of the co-authors, said while the research was broad it was yet to capture the full extent of racism experienced by Indigenous people.
"The experiences captured in our study are just the tip of the iceberg," she said.
"We have not captured all forms of interpersonal discrimination that Aboriginal and Torres Strait Islander people face, or the ubiquitous and insidious impacts of structural racism."
University of Canberra chancellor and study co-author Professor Tom Calma said addressing racism was a necessary first step to improve wellbeing and closing gaps with non-Indigenous people.
"If the contribution of interpersonal discrimination - let alone the whole system of racism - could be this big, how can we justify inaction?" he said.
"There is a clear need for supports for those who have experienced interpersonal discrimination and racism."
The study has been published in a special edition of medical journal The Lancet.
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