Objective The goal of this study was to explore sleep quality as a potential mediator between depression symptoms and diabetes quality of life (DQOL), and anxiety symptoms and DQOL. Method Participants were 83 male and 3 female veterans with type 2 diabetes (Mage = 62.4). Self‐report measures were completed during the baseline assessment of a larger intervention study conducted at the VA Boston Healthcare System. Results Depression symptoms, anxiety symptoms, and sleep quality were all associated with DQOL. Additionally, sleep quality had a partial indirect effect on the relationships between depression symptoms and DQOL, and between anxiety symptoms and DQOL. Conclusions These findings suggest that sleep quality may have an important role in the way that psychological distress affects diabetes quality of life. © 2012 Wiley Periodicals, Inc. J. Clin. Psychol. 00:1‐11, 2012.