Results drawn from earlier research support transformational leadership of principals has exercise a measurable effect on school effectiveness. However, the conceptual and methodological tools have created discrepancies in research results. The use of directed-effects model does not resolve the most important theoretical issues concerning the means by which principals achieve an impact on school effectiveness and how contextual forces influence the exercise of transformational leadership in the schoolhouse. By using the Structural Equation Model (SEM), this study examined the relationship between principal's transformational leadership and school effectiveness mediated by the condition of school health. Three related questionnaires were used to measure the major variables while data was collected from a sample of 945 teachers of junior high schools in Taiwan. It was found that school effectiveness could be predicted significantly by the transformational leadership of principals and the school health. Also, the results from mediated-effects model indicated that school health did significantly mediate the effects of transformational leadership on school effectiveness.