Introduction Depression is highly prevalent and the leading contributor to the burden of disease in young people worldwide, making it an ongoing priority for early intervention. As the current evidence-based interventions of medication and psychological therapy are only modestly effective, there is an urgent need for additional treatment strategies. This paper describes the rationale of the Improving Mood with Physical ACTivity (IMPACT) trial. The primary aim of the IMPACT trial is to determine the effectiveness of a physical activity intervention compared with psychoeducation, in addition to routine clinical care, on depressive symptoms in young people. Additional aims are to evaluate the intervention effects on anxiety and functional outcomes and examine whether changes in physical activity mediate improvements in depressive symptoms. Methods and analysis The study is being conducted in six youth mental health services across Australia and is using a parallel-group, two-arm, cluster randomised controlled trial design, with randomisation occurring at the clinician level. Participants aged between 12 years and 25 years with moderate to severe levels of depression are randomised to receive, in addition to routine clinical care, either: (1) a physical activity behaviour change intervention or (2) psychoeducation about physical activity. The primary outcome will be change in the Quick Inventory of Depressive Symptomatology, with assessments occurring at baseline, postintervention (end-point) and 6-month follow-up from end-point. Secondary outcome measures will address additional clinical outcomes, functioning and quality of life. IMPACT is to be conducted between May 2014 and December 2019. Ethics and dissemination Ethical approval was obtained from the University of Melbourne Human Research Ethics Committee on 8 June 2014 (HREC 1442228). Trial findings will be published in peer-reviewed journals and presented at conferences. Key messages will also be disseminated by the youth mental health services organisation (headspace National Youth Mental Health Foundation). Trial registration number ACTRN12614000772640.