The purpose of the research was to evaluate the effect of institutionalization on the level of self-esteem, and life satisfaction among elderly people. For this purpose, it is hypothesized that: Self-esteem would predict Satisfaction with Life in institutionalized elderly. The sample was comprised of 120 individuals in which 60 were institutionalized elderly and 60 were elderly who live in their homes. Authorities of old age homes in Karachi were approached and permission for data collection was obtained. Non-institutionalized sample was approached through snowball technique. Their age ranged from 60 years and above (M=66; SD=7.2). Urdu version of Rosenberg’s Self- esteem Inventory (Sardar, 1998) and Satisfaction with Life Scale (Diener, Emmon, Larson & Griffin1985) were used. Participants’ permission was also taken and they were informed about the research through informed consent. After taking consent, Rosenberg’s Self-esteem Inventory (Sardar, 1998) and Satisfaction with Life Scale (Diener, Emmon, Larson & Griffin1985) were administered in individual setting. For statistical analysis, descriptive statistics and Linear Regression were applied through SPSS, version 23. Linear Regression Analysis showed that self-esteem is a significant indicator of life satisfaction (R² = .78, F = 417.02, p <.01) among institutionalized elderly.