The examination of humor use by supervisors has garnered an increasing attention in organizational behavior literature, revealing its dual impact on employees’ mental well-being. Grounded in the benign violation theory of humor and social exchange principles, this study delves into the adverse influences of humor use on psychological contract breach (PCB) and psychological distress among public sector employees during a period of persistent change and uncertainty in the Australian public administration. Two studies were conducted to gather data: an experimental study and a time-lagged cross sectional field work. In the first study, a cross-sectional sample of 101 working adults were surveyed to explore the impact of leader humor on PCB and psychological distress. The findings provided empirical support for the positive and causal effect of a humorous leader on PCB. Additionally, evidence emerged for an indirect effect of a humorous leader on psychological distress, mediated by PCB. The second study employed a four-week internal separation design, involving 236 public sector employees who participated in an online survey assessing their perceptions of immediate supervisor’s use of humor, PCB and psychological uncertainty during organizational change period in Time 1, and the ultimate psychological distress in Time 2. The results indicated that a supervisor’s humor use had an indirect effect on psychological distress, mediated by PCB. Furthermore, psychological uncertainty intensified the positive relationship between the use of humor by a supervisor and PCB. This study sheds lights on the nuanced dynamics of humor use in the workplace, revealing potential detrimental effects on employees’ psychological well-being amid organizational change and uncertainty.