Objectives Group living is an approach that can create small, homelike environments in traditional nursing homes in Japan. The aim of the present study was to examine quality of life (QOL) of residents with dementia in group-living situations. Methods The group-living group consisted of facilities that formed residential units. Each unit had a common area and stable staff assignments. The control group consisted of facilities that did not form residential units. The quality of life instrument for Japanese elderly with dementia (QLDJ) scale was used to rate QOL by direct care workers of 616 residents with dementia from 173 facilities in the group-living group and 750 residents from 174 facilities in the control group. QOL was based on the following subscales: interacting with surroundings; expressing oneself; and experiencing minimal negative behavior. Results Multilevel regression analyses demonstrated a significantly greater QOL with respect to interacting with surroundings, expressing oneself, and experiencing minimal negative behavior for residents with dementia in the group-living group compared to the control group, as measured by the QLDJ. The total QLDJ score was also significantly higher for the group-living group. Conclusion The results suggest improved QOL of residents with dementia under group-living situations. Future studies should examine the effect of group-living on QOL of residents with dementia using a cohort design, following residents longitudinally from admission.