Although Type 2 (non-insulin-dependent) diabetes mellitus (Type 2 DM) is more common in South Asians than in Europeans in the UK, very little is known about complications and their risk factors in South Asians. We sought microalbuminuria in a cross-sectional study of 583 European and 889 South Asian Type 2 DM clinic attenders to Ealing Hospital, London, over 1 year. Albumin/creatinine ratios were measured in early morning urines. Prevalence of microalbuminuria was greater in South Asians compared to Europeans (40% versus 33% in men, p = 0.003, and 33% versus 19% in women, p < 0.0001). Glycaemic control was worse and prevalence of hypertension, retinopathy and heart disease was higher in South Asians. Key risk factors for microalbuminuria in both ethnic groups were glycaemic control, diabetes duration, blood pressure, triglyceride and retinopathy, but none accounted for the higher microalbuminuria prevalence in South Asians. Age and sex adjusted odds ratio for microalbuminuria was 1.78 (95% CI 1.02, 2.82, p = 0.02) in South Asians versus Europeans. After adjustment for confounders, this became 2.07, 95% CI 1.13, 3.79, p = 0.02. We conclude that microalbuminuria is more common in South Asians with Type 2 DM than in Europeans and, although risk factor relationships appeared similar in both groups, and some risk factors were more prominent in South Asians, this cannot account for the high prevalence of microalbuminuria observed in South Asians.