Aim As the population ages, mental health issues among the elderly are becoming a major concern worldwide, including in Sri Lanka. With rapid globalization, the coping and adapting skills of elderly individuals are tested, potentially revealing predisposition to psychological disturbances. Previous studies have indicated a higher risk of depression among the elderly. The current study attempts to quantify the prevalence and associated factors of depression in a highly urbanized setting within Sri Lanka. Methods A community-based, cross-sectional analytical study was carried out in the urban areas of Colombo District. The subjects were young elders (60-74 years) who permanently reside in the area. Depression was assessed by the item Geriatric Depression Scale Sinhalese version (cut-off score >= 8) among 1283 subjects. Logistic regression analysis was used to assess the association of depression with sociodemographic and health-related variables. Results The prevalence of depression in the sample was 13.9% (mild depression: 11.2%; moderate to severe depression: 2.7%). Among the sociodemographic predictors, female sex (odds ratio (OR) = 10.60), being 60-64 years old (OR = 1.61), being unmarried, separated, divorced, or widowed (OR = 3.73), income <= 20 000 Sri Lankan rupees (OR = 2.27), and perceived financial burden (OR = 3.15) were significantly associated with clinically significant depression. Among the health-related variables, smoking (OR = 2.18), alcohol use (OR = 7.58), presence of chronic disease (OR = 1.51), limitation in performing one or more instrumental activities of daily living (OR = 1.73), unsatisfactory partner relationship (OR = 2.94), perceived inadequate social support (OR = 2.47), experiencing abuse (OR = 3.90), and experiencing major life events (OR = 2.11) were significantly related with depression. Conclusion Depression is an important issue among the elderly living in an urbanized environment in Sri Lanka.