Background/Objective: Very low-carbohydrate, high-fat (LC) diets are used for type 2 diabetes (T2DM) management, but their effects on psychological health remain largely unknown. This study examined the long-term effects of an LC diet on psychological health. Methods: One hundred and fifteen obese adults [age: 58.5 ± 7.1 years; body mass index: 34.6 ± 4.3 kg m −2 ; HbA 1c : 7.3 ± 1.1%] with T2DM were randomized to consume either an energy-restricted (~6 to 7 MJ), planned isocaloric LC or high-carbohydrate, low-fat (HC) diet, combined with a supervised exercise programme (3 days week −1 ) for 1 year. Body weight, psychological mood state and well-being [Profile of Mood States (POMS), Beck Depression Inventory (BDI) and Spielberger State Anxiety Inventory (SAI)] and diabetes-specific emotional distress [Problem Areas in Diabetes (PAID) Questionnaire] and quality of life [QoL Diabetes-39 (D-39)] were assessed. Results: Overall weight loss was 9.5 ± 0.5 kg (mean ± SE), with no difference between groups (P = 0.91 time × diet). Significant improvements occurred in BDI, POMS (total mood disturbance and the six subscales of anger-hostility, confusion-bewilderment, depression-dejection, fatigue-inertia, vigour-activity and tension-anxiety), PAID (total score) and the D-39 dimensions of diabetes control, anxiety and worry, sexual functioning and energy and mobility, P < 0.05 time. SAI and the D-39 dimension of social burden remained unchanged (P ≥ 0.08 time). Diet composition had no effect on the responses for the outcomes assessed (P ≥ 0.22 time × diet). Conclusion: In obese adults with T2DM, both diets achieved substantial weight loss and comparable improvements in QoL, mood state and affect. These results suggest that either an LC or HC diet within a lifestyle modification programme that includes exercise training improves psychological well-being.