Due to the importance of leadership in development of organizations, a wave of interest by focusing on positive approaches to leadership has emerged; one of them is authentic leadership.Accordingly, the present research aimed to study the mediating role of psychological capital in relationship between authentic leadership and work engagement. Statistical population consisted of all employees of a big steel factory in Isfahan, among whom 218 were selected through convenience sampling method. The research instruments consisted of authentic leadership (Walumbwa et al., 2006), work engagement (Utrecht, 2002), and psychological capital (Nguyen et al., 2012) questionnaires. Data were analyzed by using Pearson's Correlation coefficient and structural equation modeling (SEM). Results revealed that significant positive relationship existed between all components of authentic leadership with components of psychological capital and work engagement. Moreover, the proposed model had appropriate goodness of fit and there were significant chain relationships between authentic leadership and psychological capital with work engagement. According to the findings of this study, it can be concluded that authentic leadership directly encourages employees' work engagement, and indirectly, through the impact on the psychological capital, it increases the worker's engagement. Based on the results of the effect of authentic leadership on psychological capital and employees work engagement, in consideration of authentic leaders in selection process, placement and successor planning should be considered through the organizations' top managers.