A large proportion of patients undergoing dialysis treatment have sleep disorders, while their psychosocial adjustment is reduced due to severe changes in patients’ daily life imposed by dialysis therapy. The aim of this study was to investigate the association between quality of sleep and psychosocial adjustment in dialysis patients. In this study, 402 patients on dialysis participated. Sleep quality was evaluated via the Athens Insomnia Scale (AIS) and Psychosocial adjustment via the Psychosocial Adjustment to Illness Scale (PAIS-SR). The Mann-Whitney test was utilized to compare the PAIS scale between patients with and without insomnia. Multiple linear regression analysis was utilized with the dependent variable, the PAIS scale. Adjusted regression coefficients (β) with standard errors (SE) were computed from the results of the linear regression analyses. Log transformations of the dependent variables were utilized in the multiple linear regression analysis. The results showed that having insomnia was significantly associated with greater difficulty in adjustment to vocational environment (p = 0.008), domestic environment (p < 0.001), sexual relationship (p < 0.001), extended family relationships (p < 0.001), social environment (p < 0.001), and psychological distress (p < 0.001). The findings of this study highlight the vital role of sleep quality in dialysis patients’ psychosocial adjustment. Administering individualized sleep management programs such as cognitive-behavioral therapy for insomnia, sleep hygiene education, and relaxation techniques could help dialysis patients achieve better sleep quality and improve their psychosocial adjustment. Routine screening for sleep disorders should be part of the regular care provided to dialysis patients.