OBJECTIVE We evaluated the association between diabetic retinopathy stages and lower-extremity arterial disease (LEAD), its prognostic value, and the influence of potential contributors to this relationship in a prospective cohort of patients with type 2 diabetes. RESEARCH DESIGN AND METHODS Diabetic retinopathy was staged at baseline as absent, nonproliferative, or proliferative. A Cox regression model was fitted in order to compute the hazard ratio (HR) (95% CI) for major LEAD (lower-limb amputation or revascularization) during follow-up by baseline retinopathy stages. The retinopathy-LEAD association was assessed in subgroups by age, sex, diabetes duration, HbA1c, systolic blood pressure, diabetic kidney disease, smoking, and macrovascular disease at baseline. The performance of retinopathy in stratifying LEAD risk was assessed by using the C statistic, integrated discrimination improvement (IDI), and net reclassification improvement (NRI). RESULTS Among 1,320 participants without a history of LEAD at baseline, 94 (7.1%) developed a major LEAD during a 7.1-year median follow-up (incidence rate 9.6 per 1,000 person-years [95% CI 7.8–11.7]). The LEAD incidence rate (per 1,000 person-years) increased as retinopathy worsened: it was 5.5 (95% CI 3.9–7.8) in participants in whom retinopathy was absent, 14.6 (11.1–19.3) in those with nonproliferative retinopathy, and 20.1 (11.1–36.3) in those with proliferative retinopathy. Nonproliferative retinopathy (adjusted HR 2.31 [95% CI 1.43–3.81], P = 0.0006) and proliferative retinopathy (3.14 [1.40–6.15], P = 0.007) remained associated with major LEAD. No heterogeneity was observed across subgroups. Retinopathy enhanced the C statistic (+0.023 [95% CI 0.003–0.044], P = 0.02), IDI (0.209 [0.130–0.321], P < 0.001), and NRI (0.562 [0.382–0.799], P < 0.001) values for risk of LEAD, beyond traditional risk factors. CONCLUSIONS An independent dose-response relationship was identified between diabetic retinopathy stages and major LEAD. Retinopathy yielded incremental prognostic information for stratifying risk of LEAD, suggesting its usefulness as a predictor of LEAD.