Anemia is more common in patients with diabetes than without diabetes, and the problem is magnified in patients with renal impairment. Diabetic patients with anemia may be at increased risk of adverse outcomes from diabetic retinopathy, nephropathy, neuropathy, and cardiovascular disease. The etiology of anemia in diabetes is multifactorial and includes inflammation, nutritional deficiencies, concomitant autoimmune diseases, drugs, and hormonal changes in addition to kidney disease. Anemia that is associated with erythropoietin deficiency may have prognostic significance for persons with nephropathy or heart failure. In early diabetic nephropathy, damage to the peritubular fibroblasts can occur and lead to erythropoietin deficiency and anemia prior to the loss of filtration. Correction of the anemia not only leads to less fatigue, greater exercise tolerance, and an improved quality of life but also to a reduction in mortality and hospital admissions for congestive heart failure (CHF). Data are accumulating that suggest that treatment of anemia will slow the progression of microvascular and macrovascular complications, including postural hypotension from autonomic neuropathy, retinopathy, and loss of renal function from diabetic nephropathy. Promptly diagnosing and treating anemia in patients with diabetes may result in an improved quality of life and decreased morbidity and mortality.