The COVID-19 pandemic is a chronically stressful event, particularly for youth. Here, we examine (i) changes in mood and anxiety symtpoms, (ii) pandemic-related stress as a mediator of change in symptoms, and (ii) threat processing biases as a predictor of increased anxiety during the pandemic. A clinically well-characterized sample of 81 youth ages 8–18 years (M = 13.8 years, SD = 2.65; 40.7% female) including youth with affective and/or behavioral psychiatric diagnoses and youth without psychopathology completed pre- and during pandemic assessments of anxiety and depression and COVID-related stress. Forty-six youth also completed a threat processing fMRI task pre-pandemic. Anxiety and depression significantly increased during the pandemic (all ps < 0.05). Significant symptom change was partially mediated by pandemic stress and worries. Increased prefrontal activity in response to neutral faces pre-pandemic was associated with more intense parent-reported anxiety during the pandemic (all Fs(1.95,81.86) > 14.44, ps < 0.001). The present work extends existing knowledge on the mediating role of psychological stress on symptoms of anxiety and depression in youth.