Background The negative impact of parental depression on offsprings' development has been repeatedly documented. There is however little research on the potential pathways contributing to this association. The present study examined the relationship between parental depressive disorders, family functioning and adolescents' self-esteem. Methods A community-based sample of 1040 participants aged 14-17 years and their parents was assessed including direct and indirect information on parental psychopathology based on the Munich-Composite International Diagnostic Interview (M-CIDI). Family functioning and youth self-esteem were assessed by self-report questionnaires using the McMaster Family Assessment Device (FAD) in parents and the "Aussagen-Liste zum Selbstwertgefühl" in adolescents. Results Findings from multiple regression analyses indicated positive associations between parental depressive disorders and dimensions of dysfunctional family functioning as well as between dysfunctional familial affective involvement and youth's positive self-esteem. The relationship between parental depression and self-esteem was partly mediated by familial affective involvement. Limitations Associations may be underestimated, since incidence for depressive disorders spans to the third decade of life. Consensus diagnoses for parental depressive disorders were based on direct and indirect information for maximum use of available data, neglecting familial load, chronicity of parental depressive disorders or comorbid conditions. Thus, specificity of the findings for the family transmission of depressive disorders remains yet to be determined. Conclusions Findings contribute to understanding of the pathways on how parental depression impairs offsprings' view of themselves, and to consider family functioning as a possible target for preventive interventions.