Abstract: Objective: In spite of the evidence that both symptom reduction and functional improvement are important for supporting recovery from trauma, psychotherapy process research has largely focused on mechanisms of symptom reduction. A better understanding of how change occurs in treatments that emphasize functional improvement rather than trauma processing is critical for optimizing effective, patient-centered care. Method: This study involved secondary analysis of data collected in three multisite trials of a 10-module web-based version of Skills Training in Affective and Interpersonal Regulation, a skills-focused transdiagnostic intervention. The sample included 314 trauma-exposed veterans (38% male; 64% non-Hispanic White) who screened positive for elevated symptoms of posttraumatic stress disorder and/or depression. Latent change score modeling examined prospective relationships between changes from pre-to-mid and mid-to-post treatment in four potential mechanisms (emotion regulation, interpersonal problems, posttraumatic stress disorder symptoms, and depression symptoms) and the association of these changes with overall functional improvement (at posttreatment and follow-up). Results: Emotion regulation change during the first half of treatment predicted interpersonal and symptom improvements during the second half of treatment, but not vice versa. Changes in each potential mechanism were uniquely associated with functional improvement and together statistically accounted for 78% additional variance in functional improvement beyond what was associated with baseline functioning and covariates. Conclusions: Results support emotion regulation as an early mechanism of transdiagnostic therapeutic change in web-based version of Skills Training in Affective and Interpersonal Regulation and highlight the relevance of all four potential mechanisms to functional improvement. The study contributes to an understanding of how change occurs in skills-focused interventions for trauma-exposed individuals.