Aim To investigate the influence of perceived stress, optimism and perceived control of internal states on the psychological adjustment of older adults. Method The sample consisted of 212 older adults, aged between 58 and 103 (M = 80.42 years, SD = 7.31 years), living primarily in retirement villages in Melbourne, Victoria. Participants completed the Perceived Stress Scale, Life Orientation Test‐Revised, Perceived Control of Internal States Scale and the World Health Organisation Quality of Life‐Bref. Results Optimism significantly mediated the relationship between older people's perceived stress and psychological health, and perceived control of internal states mediated the relationships among stress, optimism and psychological health. The variables explained 49% of the variance in older people's psychological adjustment. Conclusion It is suggested that strategies to improve optimism and perceived control may improve the psychological adjustment of older people struggling to adapt to life's stressors.