The pandemic has taken a toll on the mental health of people especially health care workers like physicians, nurses and paramedical staff who have to work for long hours, in shifts and under immense stressful situations. There is ample literature available on the effect of stress on psychological wellbeing. The aim of this research paper is to find out the mediation effect of subjective happiness on the relationship between perceived stress and psychological wellbeing of health care workers who are engaged in COVID-19 hospital duties. The sample included 231 physicians and healthcare workers engaged in duties in two major COVID-19 medical college hospitals of Northern India. The results prove that there is a significant effect of perceived stress on psychological well- being with subjective happiness playing a mediating role. Perceived stress decreases subjective happiness which in turn affects psychological wellbeing of physicians and health care workers during COVID-19. Higher the level of subjective happiness, lesser will be the impact or there will be delayed impact of perceived stress on psychological wellbeing. Psychological Well Being (PWB) Scale (Ryff, 1989), Subjective Happiness Scale (Lyubomirsky & Lepper, 1999) and Perceived Stress Scale (Cohen, 1994) were used to examine the mediation of subjective happiness on the relationship between perceived stress and psychological wellbeing.