Type 2 diabetes is the most common form of diabetes in the United States and is associated with significant long-term morbidity and increased mortality. Patients with diabetes are at much higher risk for development of both microvascular and macrovascular complications, including peripheral neuropathy, nephropathy, ophthalmic abnormalities, and cardiovascular disease. Not surprisingly, direct and indirect healthcare costs associated with diabetes totaled $98 billion in 1997. Studies have shown that improving glycemic control leads to reductions in healthcare utilization and a decrease in overall costs. Notably, early and aggressive treatment may delay or even prevent many of the complications associated with diabetes, leading to improved quality of life and reduced expenditures in patients with type 2 diabetes. This article will provide a review of recent findings on the impact of diabetes on healthcare costs.