C-peptide measurement may represent a better index of pancreatic β-cell function compared to insulin. While insulin is mainly cleared by liver, C-peptide is mainly metabolized by kidneys. The aim of our study was to evaluate the association between baseline plasma C-peptide level and the development of type 2 diabetes independent of glucose and insulin levels and to examine potential effect-modification by variables related to kidney function. We included 5176 subjects of the Prevention of Renal and Vascular End-Stage Disease study without type 2 diabetes at baseline. C-peptide was measured in plasma with an electrochemiluminescent immunoassay. Cox proportional hazards regression was used to evaluate the association between C-peptide level and type 2 diabetes development. Median C-peptide was 722 (566–935) pmol/L. During a median follow-up of 7.2 (6.0–7.7) years, 289 individuals developed type 2 diabetes. In multivariable-adjusted Cox regression models, we observed a significant positive association of C-peptide with the risk of type 2 diabetes independent of glucose and insulin levels (hazard ratio (HR): 2.35; 95% confidence interval (CI): 1.49–3.70). Moreover, we found significant effect modification by hypertension and albuminuria (p < 0.001 and p = 0.001 for interaction, respectively), with a stronger association in normotensive and normo-albuminuric subjects and absence of an association in subjects with hypertension or albuminuria. In this population-based cohort, elevated C-peptide levels are associated with an increased risk of type 2 diabetes independent of glucose, insulin levels, and clinical risk factors. Elevated C-peptide level was not independently associated with an increased risk of type 2 diabetes in individuals with hypertension or albuminuria.