Background Diabetes mellitus is a major global public health threat. In Australia, as elsewhere, it is responsible for a sizeable portion of the overall burden of disease, and significant costs. The psychological and social impact of diabetes on individuals with the disease can be severe, and if not adequately addressed, can lead to the worsening of the overall disease picture. The Living With Diabetes Study aims to contribute to a holistic understanding of the psychological and social aspects of diabetes mellitus. Methods/Design The Living With Diabetes Study is a 5-year prospective cohort study, based in Queensland, Australia. The first wave of data, which was collected via a mailed self-report survey, was gathered in 2008, with annual collections thereafter. Measurements include: demographic, lifestyle, health and disease characteristics; quality of life (EQ-5D, ADDQoL); emotional well-being (CES-D, LOT-R, ESSI); disease self-management (PAM); and health-care utilisation and patient-assessed quality of care (PACIC). 29% of the 14,439 adults who were invited to participate in the study agreed to do so, yielding a sample size of 3,951 people. Discussion The data collected by the Living With Diabetes Study provides a good representation of Australians with diabetes to follow over time in order to better understand the natural course of the illness. The study has potential to further illuminate, and give a comprehensive picture of the psychosocial implications of living with diabetes. Data collection is ongoing.