Type 2 diabetes mellitus (DM) is associated with higher bone mineral density (BMD) and paradoxically with increased fracture risk. It is not known if low BMD, central to fracture prediction in older adults, identifies fracture risk in patients with DM. To determine if femoral neck BMD T score and the World Health Organization Fracture Risk Algorithm (FRAX) score are associated with hip and nonspine fracture risk in older adults with type 2 DM. Data from 3 prospective observational studies with adjudicated fracture outcomes (Study of Osteoporotic Fractures [December 1998-July 2008]; Osteoporotic Fractures in Men Study [March 2000-March 2009]; and Health, Aging, and Body Composition study [April 1997-June 2007]) were analyzed in older community-dwelling adults (9449 women and 7436 men) in the United States. Self-reported incident fractures, which were verified by radiology reports. Of 770 women with DM, 84 experienced a hip fracture and 262 a nonspine fracture during a mean (SD) follow-up of 12.6 (5.3) years. Of 1199 men with DM, 32 experienced a hip fracture and 133 a nonspine fracture during a mean (SD) follow-up of 7.5 (2.0) years. Age-adjusted hazard ratios (HRs) for 1-unit decrease in femoral neck BMD T score in women with DM were 1.88 (95% confidence interval [CI], 1.43-2.48) for hip fracture and 1.52 (95% CI, 1.31-1.75) for nonspine fracture, and in men with DM were 5.71 (95% CI, 3.42-9.53) for hip fracture and 2.17 (95% CI, 1.75-2.69) for nonspine fracture. The FRAX score was also associated with fracture risk in participants with DM (HRs for 1-unit increase in FRAX hip fracture score, 1.05; 95% CI, 1.03-1.07, for women with DM and 1.16; 95% CI, 1.07-1.27, for men with DM; HRs for 1-unit increase in FRAX osteoporotic fracture score, 1.04; 95% CI, 1.02-1.05, for women with DM and 1.09; 95% CI, 1.04-1.14, for men with DM). However, for a given T score and age or for a given FRAX score, participants with DM had a higher fracture risk than those without DM. For a similar fracture risk, participants with DM had a higher T score than participants without DM. For hip fracture, the estimated mean difference in T score for women was 0.59 (95% CI, 0.31-0.87) and for men was 0.38 (95% CI, 0.09-0.66). Among older adults with type 2 DM, femoral neck BMD T score and FRAX score were associated with hip and nonspine fracture risk; however, in these patients compared with participants without DM, the fracture risk was higher for a given T score and age or for a given FRAX score.