Yes it can, in some cases.
Isolation leads to rumination in the absence of external stimuli to temporarily distract us, we can ruminate (think something to death) on negative events. Mild distraction via daily life is healthy. Mental illness, whether it be related to low arousal, such as depression, or high arousal, such as anxiety, may be kept within limits when we have competing stimuli to consider, such as daily life events (even somewhat negative life events, such as traffic and other daily hassles).
In addition, we need feedback from the external environment to keep us on track. Socialization is defined as observing the impact our behavior has upon others or our environment. Socialization gives us the opportunity to receive feedback regarding our thought content and behavior. When our thought content or behavior is maladaptive, we receive this feedback from others. During periods of isolation, we do not receive this feedback. Therefore, maladaptive thinking and/or behavior may continue unchecked.
Regarding the physical effects of isolation, our physical activity and sleep patterns may become upset. When our sleep is dysregulated, our energy levels can change, as can our brain chemistry, leading to mood and alertness changes. When one becomes sedentary, such as the case when one does not need to wake up timely for work or become active to see friends, the brain receives less dynamic blood flow, and neurotransmitter release, such as dopamine (our “reward” or pleasure neurotransmitter) decreases, causing mood to fall.