Background: Psychotropic medications have been associated with many adverse outcomes in older people living in residential care. Home-like models of residential care may be preferable to traditional models of care and we hypothesized that this model may impact on the prevalence of psychotropic medications. The objectives were to: 1) examine associations between psychotropic medications and quality of life in older adults living in residential care facilities with a high prevalence of cognitive impairment and dementia and 2) determine if there was a difference in prevalence of psychotropic medications in facilities which provide a small group home-like model of residential care compared to a 'standard model' of care. Methods: Participants included 541 residents from 17 residential aged care facilities in the Investigating Services Provided in the Residential Environment for Dementia (INSPIRED) study. Cross-sectional analyses were completed to examine the above objectives. Quality of life was measured with the dementia quality of life questionnaire (DEMQOL) and the EQ-5D-5L completed by the resident or a proxy. Results: Overall, 70.8% (n = 380) of the population had been prescribed/dispensed at least one psychotropic medication in the 100 days prior to recruitment. An increased number of psychotropic medications was associated with lower quality of life according to DEMQOL-Proxy-Utility scores (β (SE): - 0.012 (0.006), p = 0.04) and EQ-5D-5L scores (- 0.024 (0.011), p = 0.03) after adjustment for resident-level and facility-level characteristics. Analysis of the individual classes of psychotropic medications showed antipsychotics were associated with lower DEMQOL-Proxy-Utility scores (- 0.030 (0.014), p = 0.03) and benzodiazepines were associated with lower EQ-5D-5L scores (- 0.059 (0.024), p = 0.01). Participants residing in facilities which had a home-like model of residential care were less likely to be prescribed psychotropic medications (OR (95% CI): 0.24 (0.12, 0.46), p < 0.001). Conclusions: An increased number of psychotropic medications were associated with lower quality of life scores. These medications have many associated adverse effects and the use of these medications should be re-examined when investigating approaches to improve quality of life for older people in residential care. Home-like models of residential care may help to reduce the need for psychotropic medications, but further research is needed to validate these findings.