Type 1 diabetes is a chronic disease with an early onset, but little is known about its psychological effects in middle childhood. The present study was the first to explore the relationship between mental health, wellbeing, and lifestyle of 8–11 years old children with Type 1 diabetes and their parents, and a healthy comparison group. A total of 200 parent-child dyads were recruited in diabetic clinics and from primary schools in Kuwait. Both groups completed a series of behavioural and physical assessments relating to health, wellbeing, and lifestyle. A significant relationship was found between higher Body Mass Index (BMI) and poorer mental health, including low academic self-esteem, depression, and anxiety, in the diabetes group. This group had significantly higher mean scores in mental health problems, and lower scores in wellbeing, compared with control group. Both groups had poor dietary habits and low levels of physical activity. Unlike previous studies, no differences were found between parents’ mental health for children with Type 1 diabetes and parents of the control group. Although elevated problem scores on a variety of indices remained within normal range, the pattern of results indicates that children with diabetes would profit from early screening and preventative intervention to reduce the likelihood of psychological and behavioural difficulties later on.