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Objective: Evidence point to intergenerational effects of trauma in refugee populations. This study estimates the risk of psychiatric diagnoses in children of severely traumatized refugees. The unique clinical sample consisted of refugee parents treated for torture trauma and war trauma, and outcomes were investigated using population‐level data. Method: A nationwide register study, following all children residing in Denmark. The exposure was parental torture trauma and war trauma, and outcomes were any psychiatric disorder, mood, neurotic, behavioural and emotional disorders and disorders of psychological development. Children's hazard of being diagnosed was estimated using Cox proportional hazards regression. Study participants were followed from the date of birth or immigration to their 18th birthday. Results: The cohort included 3 346 993 children of which 19 294 were identified as offspring to traumatized refugees. During the study period, 205 610 children were diagnosed with a psychiatric disorder. Children with parents from the Middle East and Northern Africa had a hazard ratio of 0.78 (95% CI: 0.72, 0.84) for those treated for parental trauma and 0.79 (95% CI: 0.76, 0.81) for those not treated compared with children of non‐traumatized Danish‐born parents. For children of parents from former Yugoslavia, the corresponding estimates were 0.69 (95% CI: 0.58, 0.81) and 0.69 (95% CI: 0.65, 0.73). Conclusion: The results suggest that children of parents with and without registered torture trauma and war trauma have a lower risk of being diagnosed with a psychiatric disorder compared to children of Danish‐born parents. These findings contradict research done on the transmission of trauma but supports evidence suggesting mental health services underutilization by refugee and ethnic minority populations. [ABSTRACT FROM AUTHOR]