In consistency with the aspiration of Ministry of Youth and Sports in developing youths who are united among each other, disciplined, and have high morals, some efforts have been taken by the National Youth Skills Institute (IKBN) to help in producing youths who have good morals and vision. This study focuses on psychological factors and mental health in order to establish a productive youth. Therefore, this research aims to determine the level of family functioning and cognitive distortion among IKBN students in Malaysia. A total of 1,200 students took part in this study. The instruments used were Family Adaptability and Cohesion Evaluation Scales III (FACES III) to measure family functioning, and Cognitive Distortion Scale (CDS) to measure cognitive distortion. Results indicate that students’ family functioning is at a moderate level, whilst students’ cognitive distortion is at a low level. The results also indicate that family functioning can prevent the problem of cognitive distortion among youths. The implications of this study can be contributed to the youth development by IKBN and the Ministry of Youth and Sports in Malaysia.