AI chatbots are becoming part of everyday life for many preteens, with some children beginning to use them as early as eight years of age. These applications simulate conversation in ways that feel natural and responsive, making them appealing for children seeking advice, friendship, or entertainment. However, Australia's eSafety Commissioner has cautioned that AI chatbots may expose children to psychological risks, including social withdrawal and content that could worsen distress. At the same time, there is potential for AI chatbots to be designed to support wellbeing. With the Australian national ban on social media for under-16s, families and policymakers are concerned that children may turn to AI chatbots instead, triggering new debates about regulation of AI technologies. Despite these pressing concerns, almost no research has examined how AI chatbots influence children's mental health. This project addresses that gap, providing insight into how AI chatbots affect children's wellbeing and offering clear guidance for safe, healthy use. The research will identify ways to protect mental health and highlight opportunities for supportive technology, with particular attention to children experiencing loneliness or other vulnerabilities. By clarifying the risks and potential benefits, this research hopes to help Australia develop evidence-based policies and regulatory measures that safeguard the next generation.