The Ethiopian higher education sector has experienced unprecedented expansion over the past three decades; however, this growth has been accompanied by persistent challenges related to educational quality, student support systems, and graduate employability. Concurrently, university students report elevated rates of mental health problems, yet limited research has examined the protective psychological resources that may buffer against these difficulties. This study investigated the relationships among perceived challenges, resilience, well-being, and mental health outcomes among Ethiopian public university undergraduates. Specifically, the study examined: (1) the prevalence and nature of perceived challenges; (2) levels of resilience and well-being; (3) associations between resilience, well-being, and mental health; and (4) the moderating role of resilience in the challenge–mental health relationship. A cross-sectional survey of 846 randomly selected undergraduates from four public universities employed validated instruments including the Connor–Davidson Resilience Scale-10 (CD-RISC-10), the World Health Organization Well-Being Index (WHO-5), the Depression, Anxiety and Stress Scale-21 (DASS-21), and a researcher-developed Higher Education Challenges Inventory. Descriptive statistics, Pearson correlation, hierarchical multiple regression, and moderation analysis were utilized. Students perceived moderate to high academic, financial, and psychosocial challenges. Resilience (M = 27.84, SD = 6.12) and well-being (M = 13.46, SD = 5.18) were moderate, while 34.2% reported moderate-severe depression, 29.8% anxiety, and 31.5% stress. Resilience demonstrated significant negative correlations with depression (r = -0.41), anxiety (r = -0.36), and stress (r = -0.44). Well-being showed similar protective patterns. Moderation analysis confirmed that resilience significantly buffered the relationship between perceived challenges and mental health outcomes. Resilience and well-being serve as critical protective factors against mental health problems among Ethiopian students. These findings underscore the urgent need for comprehensive mental health promotion strategies that strengthen psychological resources while addressing systemic challenges. Universities should implement evidence-based resilience programs, strengthen counseling services, develop peer support initiatives, and target first-year students with tailored interventions. Policymakers should integrate mental health into higher education policy and increase funding for student support services.