Aims and objectives To explore the relationships among emotional distress, cognitive function and life satisfaction in people living with type 2 diabetes mellitus (T2DM), and to verify the mediating role of cognitive function. Background People with T2DM face cognitive decline caused by age and disease complications. Emotional distress will reduce their life satisfaction, and cognitive function will also affect the life satisfaction, but whether cognitive function mediates the effect of emotional distress on life satisfaction has not been verified. Design A cross‐sectional study. Methods A total of 200 people living with T2DM in the community by convenience sampling were enrolled from November–December 2018. Data collection involved a demographic and disease characteristic questionnaire, Problem Areas in Diabetes Scale, Subjective and Objective Cognitive Function Evaluation and Life Satisfaction Questionnaire. Data analysis included descriptive statistics and structural equation modelling. This report followed the STROBE guideline. Results The emotional distress and subjective memory complaints of cognitive function had a significant positive correlation, while both emotional distress and cognitive function showed significant negative correlations with life satisfaction. In addition, cognitive function completely mediated the relationship between emotional distress and life satisfaction. Conclusion The cognitive function played a mediating role in life satisfaction and explains how emotional distress affects life satisfaction of people with T2DM. Therefore, it is suggested that diabetes nurses should early identify the decline of cognitive function, and to intervene at an early stage. Relevance to clinical practice This study provides opinions on the mediating factors of cognitive function. Coping strategies and supporting resources to help the T2DM people to improve their life satisfaction are suggested.