Parental illness imposes great challenges to children’s life and mental health. Having a parent infected by HIV may further challenge children’s psychological well-being. Existing studies have demonstrated a negative impact of caregiver’s distress on children’s well-being. Limited studies examined the potential pathways of the link. This study aims to examine whether parenting stress, parenting competence and parental responsiveness can explain the relationship between caregivers’ distress and children’s well-being. A community sample of children of parents living with HIV and their current caregivers (n = 754 dyads) was recruited in rural central China. Children completed the measures on their psychological well-being and perceived parental responsiveness of their caregivers. Caregivers reported on their psychological well-being, parenting stress, and parenting competence. Structural equation modeling analysis showed that caregivers’ distress indirectly affect children’s well-being through parenting stress, parenting competence and parental responsiveness. Parenting stress explained the impact of caregiver’s distress on parental responsiveness and showed pervasive effects on parenting competence. Our findings lend credence to family-based intervention for children affected by HIV and affirm the importance of incorporating the cognitive, emotional and behavioral components of parenting practices in such intervention.