Objective The prolonged coronavirus disease-2019 (COVID-19) pandemic is likely to cause psychological distress in people. This systematic review aimed to identify the effectiveness of virtual reality (VR)-based psychological intervention among individuals with psychological distress during the COVID-19 crisis. PubMed, Ovid MEDLINE, Cochrane Library, Web of Science, Embase, and PsycINFO databases were searched for articles published until July 2022. Methods The available citations were deduplicated and screened by two authors using the title and abstract information. Eligibility criteria were constructed according to the PICOT guidelines. Empirical studies of all designs and comparator groups were included if they appraised the impact of an immersive VR intervention on any standardized measure indicative of psychological distress (stress, anxiety, depression, and post-traumatic symptoms) or improvements in quality of life in participants, including COVID-19 patients, medical staff working with COVID-19 patients, and people who had experienced strict social distancing during the COVID-19 pandemic. Results The results were discussed using a narrative synthesis because of the heterogeneity between studies. Seven of the studies met the inclusion criteria. There were two randomized controlled trials and five uncontrolled studies on VR interventions. Conclusion All studies reported significant improvement in a wide range of psychological distress during COVID-19, ranging from stress, anxiety, depression, and post-traumatic symptoms to quality of life, supporting the efficacy of VR-based psychological intervention. Our results suggest that VR intervention has potential to ameliorate COVID-19-related psychological distress with efficacy and safety.