Yes, adjustment disorder is a mental illness because it produces symptoms that are consistent with mental health disorders.
The symptoms of adjustment disorder include depressed mood, social isolation, anxiety, and/or antisocial behavior.
Adjustment disorder is also associated with an increased risk of substance abuse and suicidal ideation. If the condition persists, it can degenerate to a severe mental health problem like major depressive disorder.
Adjustment disorder is often undiagnosed, but most estimate that it affects between 5-20% of those in outpatient mental health treatment. Adjustment disorder is most severe among individuals with other mental health disorders or those who are already going through tough times. If the health condition is not treated, it can deteriorate to other mental health problems such as depression, anxiety disorders, and substance abuse.