Positive psychological characteristics, such as optimism, self-efficacy, and resilience, have been increasingly associated with improved outcomes in medically ill individuals. However, there has been minimal systematic review of these characteristics and their associations with outcomes in people with diabetes. We aim to review these associations, their potential mediating mechanisms, and the evidence supporting interventions targeting these qualities. In people with diabetes, positive psychological characteristics are significantly associated with improved glycemic control, fewer complications, and reduced rates of mortality. Potential mechanisms mediating these associations include behavioral factors (e.g., improved treatment adherence), reduced inflammation, and improved neuroendocrine and autonomic functioning. Most psychosocial treatments in this population have focused on improving self-efficacy and resilience; such interventions may improve quality of life, well-being, and diabetes self-care. While untested in diabetes, interventions to boost other positive characteristics have been effective in other medically ill patients and may warrant further study in this cohort.