Diabetes is associated with increased psychological distress which, in turn, is associated with poorer diabetes outcomes. This study examined the impact of a nine-week Internet based cognitive-behavioral therapy intervention that targeted stress and mood in people with diabetes. It was hypothesized that the intervention would decrease psychological distress and improve diabetes outcomes and adherence to diabetes treatment regimens. Participants with type 1 and type 2 diabetes were randomly assigned to the intervention (n = 103) or a waiting-list control group (n = 74). ANCOVAs demonstrated significant group effects for the reduction of perceived generalized stress (F (1, 105) = 7.06, p = .01; d = .84), diabetes-related distress (F (1, 105) = 13.45, p < .01; d = .54), depression (F (1, 90) = 7.06, p < .01; d = .40), anxiety (F (1, 89) = 6.78, p = .01; d = .41), and negative affect (F (1, 103) = 13.02, p < .01; d = .56). There were also significant group effects for the reduction of psychological fatigue (F (1, 98) = 7.34, p = .01; d = .40), cognitive symptoms (F (1,95) = 6.40, p = .01; d = .48), hyperglycemic symptoms (F(1, 95) = 11.16, p <.01; d = .41) and hypoglycemic symptom (F(1, 98) = 6.16, p= .02; d= .53). Further, there were significant indirect effects of the intervention on the above diabetes symptoms, through psychological distress. There was no effect of the intervention on hemoglobin A1c (F(1.43) = 0.28, p= .60), though this analysis was underpowered. The intervention also had no effect on adherence to diabetes treatment regimen. This study provides evidence of a convenient and effective way to reduce psychological distress and improve symptoms in those with diabetes. It also provides evidence of reduced psychological distress as a mechanism for improving diabetes outcomes.