Diabetes is often associated with dysfunction in activities of daily living (ADL), especially among older adults. Hospitalisation of older adults is often followed by decline in functional status affecting their quality of life and well-being after discharge. The objective of this study was to determine the functional independence in carrying out basic activities of daily living, its relationship with quality of life, and the factors influencing the quality of life in hospitalised older adults with diabetes. This cross sectional study was carried out on 104 diabetic patients (mean age: 67.5 ± 9.2 years) who were receiving in-patient treatment. Face-to-face interviews were carried out to determine functional independence using Modified Barthel Index (MBI) as well as quality of life using the World Health Organization’s Quality of Life instrument (WHOQOL-BREF). Results showed that only 37.5% (n = 39) respondents were catergorised as being fully-independent. Among the domains in MBI, using the stairs recorded the lowest score followed by mobility. The physical domain in quality of life also recorded the lowest score compared to other domains of quality of life. There were significant (p < 0.05), positive correlations between the overall MBI scores and all domains of quality of life; physical (rs = 0.70), psychology (rs = 0.50), social (rs = 0.33) and environmental (rs = 0.25). Hierachical multiple regression analysis showed MBI scores had significant influence on all domains of quality of life, with the largest influence on the physical domain i.e. 36% [F(1, 92) = 82.14, p < 0.01, R2 = .36]. As a conclusion, hospitalisation reduces the functional independence in carrying out basic activities of daily living as well as the physical aspect of quality life in older adults with diabetes. Therefore, it is important to provide rehabilitation in activities of daily living while the elderly diabetics while undergoing in-patient treatment in order to maintain quality of life after discharge.