Large language models (LLMs) have attracted growing interest as supportive tools for psychiatric assessment and clinical decision support. However, existing mental health benchmarks largely rely on social media data or supportive dialogue settings, limiting their ability to assess whether models can apply formal diagnostic criteria and differential diagnostic rules. In this paper, we introduce MentalBench, a benchmark for evaluating whether LLMs can make DSM-grounded psychiatric diagnostic decisions under varying levels of clinical ambiguity. At the core of MentalBench is MentalKG, a psychiatrist-built and validated knowledge graph encoding DSM-5 diagnostic criteria and differential diagnostic rules for 23 psychiatric disorders. Using MentalKG as an expert-curated logical backbone, we generate 24,750 synthetic clinical cases that systematically vary in information completeness and diagnostic complexity, enabling DSM-grounded evaluation. Our experiments show that although state-of-the-art LLMs perform well on noise-free queries that probe DSM-5 knowledge, they struggle to calibrate their confidence when distinguishing between disorders with overlapping symptoms. These findings raise concerns about the reliability of LLMs as psychiatric decision-support tools and highlight the need for more evaluation that reflects the diverse challenges in real-world psychiatric diagnosis.