Accumulating literature demonstrates that immigration detention is harmful to children. However, there is a scarcity of scientifically rigorous and reliable data about the health of children held in detention facilities. The aim of the study was to compare a community-based population of recently arrived refugee children flown into Australia, not detained, resettled in a non-urban area, with a population of children who arrived by boat seeking asylum, detained since arrival. The parent-version of the strength and difficulties questionnaire (SDQ) of children aged 4–15 years was compared in children living in the community with those held in detention. We compared 86 children who had a parent-completed SDQ performed, 38 (44%) in the community group and 48 (56%) in the detention group. The community sample had been living in Australia for 325 days, with no time in detention. The detention sample had been living in detention for a mean of 221 days. The mean age was similar for the community and detention sample at 8.4 years (P = 0.18). In the total sample, children in the detention group had significantly higher SDQ total difficulties scores than children in the community group (P < 0.0001). There was no difference between age groups (P = 0.82). The children in the detention group had, on average, an SDQ total difficulties score that was 12 points higher than children in the community group. Four of the five SDQ subscale scores indicated greater disturbance amongst children in detention (< 0.0001) compared to children living in the community. The detention group had significantly higher scores (P < 0.001) for all except Pro-social scores as compared to Australian norms for the 4–6 and 7–15 years age group. This study presents a rare opportunity to compare the wellbeing of displaced children who were detained following arrival in Australia with those settled in the Australian community since arrival. The community children’s scores approximated data from the general Australian childhood population. Children held in detention had significantly more social, emotional and behavioural difficulties than children living in the community, and at levels resembling a clinical cohort. Despite the small sample size, data restrictions and other limitations of the data, statistical significance in differences between the community and detention children is marked and arguably demonstrates the negative impact of post-arrival detention in children who are presumed to have similar levels of pre-arrival adversity. If the objective is to optimise the health and wellbeing of children seeking asylum, removal of post-arrival detention is one of the most powerful interventions available to host countries.