Background: Type 2 diabetes mellitus poses a momentous challenge when accompanied by psychiatric symptoms like depression, anxiety, and stress, adding to the complaint's threat. Research on these factors in patients with uncontrolled chronic illnesses in India, particularly in Tamil Nadu, is limited. Hence, this study aims to determine the prevalence and risk factors of these psychiatric symptoms among Type 2 diabetes patients. Methods: A cross-sectional study was conducted in Alpha Hospital and Research Center in Madurai, South India, from April 2020 to March 2021, enrolling 614 participants (307 with Type 2 diabetes mellitus and 307 general population). Data were collected using Hamilton Depression Rating Scale, Hamilton Anxiety Rating Scale and Perceived Stress Scale. The IBM SPSS version 23 was used for statistical analysis. Results: Two-thirds of youth women with type 2 diabetes have higher fasting blood sugar levels than men when compared to general population. 82.61% of patients with uncontrolled diabetes developed severe stress, surpassing those with well-controlled and pre-diabetes. Severe depression is most prevalent among patients with neuropathic foot ulcers (54.76%) and nephropathy (61.54%). Predominant mental health risk factors include being single, high school education, poor glycemic control, comorbid hypertension, and family history. Interestingly, lifestyle factors like alcohol use and smoking positively impact mental health outcomes. Conclusion: This study shows the intricate connection between Type 2 diabetes and mental health problems in Madurai, emphasizing the necessity for a multidisciplinary strategy to enhance outcomes and reduce financial burden. Future research in nursing has to focus on implementing and assessing therapies aimed at reducing patients' stress, anxiety and depression.