Issue Addressed: This cross-sectional analysis of the Australian 3D study aimed to determine the prevalence of psychological distress and describe its associated characteristics in adults recently diagnosed with type 2 diabetes. Methods: Adults (aged 18 years and over) who were recently diagnosed with type 2 diabetes (<6 months prior) were recruited through the Australian National Diabetes Services Scheme in 2018–2019. Demographic and health data were collected via interview-administered telephone surveys. Hierarchical regression was used to analyse whether demographic, self-care and clinical characteristics were associated with psychological distress, as measured by the K10 questionnaire. Results: Of the participants (n = 223), 26.3% presented with psychological distress, with 8.4% reporting mild, 8.4% reporting moderate and 9.5% reporting severe psychological distress. Neither age, sex, body mass index or taking anti-depressant medications were associated with the presence of psychological distress (p >.05). Being a smoker, living situation, less physical activity and poorer healthy eating beliefs and intentions were significantly associated with psychological distress in those not taking anti-depressant medications (p <.05). Being female was significantly associated with psychological distress in those taking anti-depressant medications (p <.05). Conclusion: The study found that psychological distress is highly prevalent in adults recently diagnosed with type 2 diabetes. Behavioural factors such as smoking and low physical activity, as well as psycho-social factors such as living situation, poor healthy eating beliefs and intentions were significantly associated with psychological distress. This has implications for the management of people with newly diagnosed type 2 diabetes. So What?: Psychological distress is highly prevalent in Australian adults newly diagnosed with type 2 diabetes, emphasising the urgent need for enhanced psychological care to support this group.