Supported living and retirement villages are becoming a significant option for older adults with impairments, with independence concerns or for forward planning in older age, but evidence as to psychological benefits for residents is sparse. This study examined the hypothesis that the multi-component advantages of moving into a supported and physically and socially accessible ‘extra-care’ independent living environment will impact on psychological and functioning measures. Using an observational longitudinal design, 161 new residents were assessed initially and three months later, in comparison to 33 older adults staying in their original homes. Initial group differences were apparent but some reduced after three months. Residents showed improvement in depression, perceived health, aspects of cognitive function and reduced functional limitations, while controls showed increased functional limitations (worsening). Ability to recall specific autobiographical memories, known to be related to social problem solving, depression and functioning in social relationships, predicted change in communication limitations, and cognitive change predicted changes in recreational limitations. Change in anxiety and memory predicted change in depression. Findings suggest that older adults with independent living concerns who move to an independent but supported environment can show significant benefits in psychological outcomes and reduction in perceived impact of health on functional limitations in a short period. Targets for focused rehabilitation are indicated, but findings also validate development of untargeted general supportive environments.