Studies of the psychological well-being of elderly living alone have yielded inconsistent results. Few investigators have distinguished living alone from loneliness in the same study. Thus, the present study examined the independent and interactive effects of living alone and loneliness on depressive symptoms (GDS score) and quality of life (SF-12 MCS score) in a prospective 2-year follow-up cohort study of 2808 community-dwelling older adults (aged ≥55 years) in Singapore, controlling for baseline covariates. In cross-sectional analysis, loneliness was a more robust predictor of GDS score than living arrangements; living alone, when controlled for loneliness, was not associated with GDS score. GDS score associated with living alone was worse for those who felt lonely than for those who did not feel lonely. Similar patterns of association were found in longitudinal analyses and for SF-12 MCS score, although not all were significant. Thus, though living alone predicted lower psychological well-being, its predictive ability was reduced when loneliness was taken into account and loneliness, a stronger predictor, worsened the psychological effects of living alone.