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Positive mental health, rather than just the absence of mental illness, is rarely investigated among the internally displaced persons (IDPs) affected by violent conflict in low-income countries. The purpose of this study was to investigate a model that could explain the interrelationship between factors contributing to positive mental health in displaced populations. In a longitudinal study we examine poverty, exposure to traumatic events and the change of material well-being after one year. We collected data in two consecutive years (2005 and 2006) from a community-based sample of IDPs in Ambon, Indonesia, through face-to-face structured interviews with consenting adults. Participants of this study were IDPs lived in Ambon during the violent conflict period. We interviewed 471 IDPs in the first year and reinterviewed 399 (85%) of the same subjects in the second year. The IDPs possessed good sense of coherence and subjective well-being. Our final model, which was generated by the use of structural equation modeling, fits the data well (χ(2) = 52.51, df = 45, p = .21, CFI = .99, RMSEA = .019). Exposure to violent conflict had a negative impact on IDPs' mental health initially and better economic conditions improved it (r = -.30 and .29 respectively). Mental health status one year previously was a strong predictor of future mental health, followed by individual economic growth in the past year (r = .43 and .29 respectively). On a group level the IDPs were resilient and adaptive to survive in adverse living conditions after devastating violent conflict, and the economic improvement contributed to it.