Background: India is witnessing a dramatic rise in the prevalence of diabetes mellitus. In this study, quality of life (QOL) of patients with diabetes and its determinants were assessed. Second, the valuation of QOL using different methods of measurement was examined. Methods: A community-based survey comprising 306 adults diagnosed with diabetes was undertaken in an urban slum area of Chandigarh city. Direct methods of QOL assessment such as time trade-off (TTO) and Visual Analog Scale (VAS) along with indirect like EuroQol 5-Dimensional 5-Level Instrument (EQ-5D-5L) and the QOL Instrument for Indian Diabetes Patients (QOLID) were used. Multiple linear regression was used to compute coefficients to assess point estimate of QOL using the Indian QOLID tool. Results: Overall, health utility scores for a person with diabetes were 0.68 (with TTO method), 0.60–0.64 (with VAS) analog scale, and EQ-5D-5L method, respectively. Valuation of QOL using direct methods yielded utility values which were significantly higher than indirect methods (EQ-5D-5L). Conclusion: Overall, this study found that diabetes is responsible for physical, psychological, and social role disturbance among the patients. In addition, choice of using direct or indirect methods of utility estimation may have practical implications while calculating incremental cost-effectiveness ratios.