Background: Engagement in work is an important determinant of health. In response to the COVID-19 pandemic, public health measures imposed to reduce viral transmission resulted in large-scale loss of work during the early stages of the pandemic, contributing to declined mental and physical health. As the pandemic unfolded, the Australian economy began to recover and some people could return to work, whilst localised lockdowns resulted in further loss of work for others. The long-term health effects of work loss remain unexplored within the COVID-19 pandemic context, in addition to whether any health effects are persistent upon returning to work. Methods: A prospective longitudinal cohort study of 2603 participants across Australia monitored changes in health and work between March and December 2020, with participants completing surveys at baseline and 1, 3 and 6Â months later. Outcomes described psychological distress, and mental and physical health. Linear mixed regression models examined associations between changes in health and experiences of work loss, and return to work, over time. Results: Losing work during the early stages of the pandemic was associated with long-term poorer mental health, which began to recover over time as some returned to work. Physical health deteriorated over time, greater for people not working at baseline. Being out of work was associated with poorer mental health, but better physical health. These effects were larger for people that had recently lost work than for people with sustained work loss, and retaining employment played a protective role. Generally, returning to work resulted in poorer physical health and improvements in mental health, although this depended on the broader context of changes in work. Conclusions: Work cessation during the pandemic led to poor health outcomes and had long-lasting effects. Returning to work benefits mental health but may reduce physical activity in the short-term. We encourage the provision of accessible mental health supports and services immediately following loss of work, and for people with prolonged forms of work loss. Trial registration: Australian New Zealand Clinical Trials Registry: ACTRN12620000857909.