One’s happiness is expected to be affected by the happiness of surrounding others. This socio‐psychological nature of happiness, however, has not been fully examined in the literature of social psychology. The current study examined if this “psychological interconnection of happiness” occurs when (i) individuals have strong personal social capital and/or (ii) individuals belong to a community where other members have strong social capital. We analysed a large social survey dataset sampled from 408 communities in Japan (N = 7295). The psychological interconnection of happiness was measured by calculating the correlation between individual happiness and perceived community happiness. The multilevel analyses revealed that the psychological interconnection of happiness was moderated by community‐level social capital above and beyond individual‐level social capital, while individual‐level social capital did not have a significant moderation effect.