RATIONALE The health effects of social integration have been extensively studied, yet the underlying dynamics of this relationship deserves more exploration. One of the important hypothesized pathways through which social integration affects health is psychological functioning, including a sense of belonging, personal control and generalized trust. OBJECTIVE Using a Canadian national survey, this study explored the effect of social integration on different health outcomes via psychological pathways, while incorporating network homophily as a predictor in the model. METHODS Five distinct demographic groups of Canadians (the Native-born Whites, Native-born visible minorities, the Aboriginal people, immigrant Whites and immigrant visible minorities) were compared on their social integration, psychological functioning, and health outcomes. Structural equation models tested the mediation effects of psychological pathways, and group differences were explored by adding interaction terms. RESULTS The study found that visible minority immigrants were least socially integrated, and the Aboriginal people had the poorest self-reported physical and mental health. Although the Aboriginal people had large networks and active network interactions, they showed stronger ethnic and linguistic homophily in their network formation than the two visible minority groups. Structural equation model results supported the mediated relationship between social integration and health via psychological pathways. A positive effect of friendship ethnic homophily on health was identified and explored. CONCLUSION Policy makers may seek opportunities to create social environments that facilitate social interactions and formation of social ties and provide support for programs serving ethnic and immigrant groups.