Urbanization has transformed societies, driven economic growth and innovation while simultaneously posing significant challenges to mental health. As cities expand and populations grow, individuals increasingly face stressors such as overcrowding, noise pollution, and limited access to natural environments, all of which exacerbate mental health issues such as anxiety, depression, and social isolation. Public spaces—ranging from urban parks and gardens to community hubs—offer a unique opportunity to mitigate these challenges and promote well-being. This review explores the intricate relationship between urbanization and mental health, emphasizing the pivotal role of thoughtfully designed public spaces in fostering mental resilience and social connectivity. The paper highlights the protective potential of green spaces and nature exposure, the importance of social spaces for community engagement, and the critical need for inclusive and accessible environments. Through a comparative analysis of case studies from developed and developing nations, the study examines successful strategies for integrating mental health considerations into urban planning. Additionally, it discusses emerging innovations, such as smart city technologies, that enhance the functionality and therapeutic value of public spaces. By synthesizing insights from urban planning, psychology, and public health, this review underscores the necessity of rethinking public spaces as catalysts for mental well-being. It concludes with actionable recommendations for policymakers, urban planners, and mental health practitioners, advocating for a holistic and equitable approach to urban design. In an era of rapid urbanization, prioritizing mental health through innovative public space development is essential to building resilient and sustainable communities.