Aging is an inevitable process that impacts the peripheral and central nervous systems and is considered one of the strongest risk factors for neurodegenerative diseases. In addition, when it also presents with diabetes mellitus, the risk of neurological damage may be further increased. This current study aimed to explore the relationships between peripheral sensory system decline and cognitive functions, the symptoms of depression, and quality of life (QoL) as metrics of central nervous system impairment in institutionalized older adults. A total of 95 individuals participated in this case-control study, which included diabetics and non-diabetics. The superficial sensory pathway was assessed in terms of thermal sensation, nociception, and non-discriminative touch, and the deep sensory pathway was evaluated by assessing vibration and light touch-pressure sensations. To assess function at the intellectual level, the Mini-Mental State Examination (MMSE) and Trail Making Test (TMT) cognitive functional tests were used, while the symptoms of depression and QoL were explored by employing the Yesavage Geriatric Depression Scale and EuroQol 5D questionnaire (EQ-5D), respectively. In the overall population analyses, altered thermal sensation was significantly associated with cognitive impairment (CI; p < 0.05). In turn, bivariate analyses and a binary logistic regression showed that the symptoms of depression and QoL were significantly related to altered vibratory sensation when assessed using a medical tuning fork (p < 0.05). In the group of diabetic patients, those with CI also had significantly lower thermal sensation (p < 0.05) and non-discriminative touch sensation, although this was only a trend (p = 0.055). Diabetics with depression had a significantly worse non-discriminative touch (p < 0.05) and vibratory sensation when tested with a tuning fork (p < 0.05). In addition, poorer QoL was associated with reduced sensitivity to heat (p < 0.05), light touch pressure (p < 0.05), and vibrations when assessed either with a tuning fork (p < 0.05) or a biothesiometer (p < 0.05). In contrast, no relationships were found between sensory functions and cognitive assessments in non-diabetic patients. These findings indicate that superficial sensitivity damage was related to CI, while deep sensation alterations were related to depression and poor QoL, with diabetes apparently further strengthening these relationships.