Background: It is a matter of debate whether diabetes alone or its associated comorbidities are responsible for severe COVID-19 outcomes. This study assessed the impact of diabetes on intensive care unit (ICU) admission and in-hospital mortality in hospitalized COVID-19 patients. Methods: A retrospective analysis was performed on a countrywide cohort of 40,632 COVID-19 patients hospitalized between March 2020 and March 2021. Data were provided by the Austrian data platform. The association of diabetes with outcomes was assessed using unmatched and propensity-score matched (PSM) logistic regression. Results: 12.2% of patients had diabetes, 14.5% were admitted to the ICU, and 16.2% died in the hospital. Unmatched logistic regression analysis showed a significant association of diabetes (odds ratio [OR]: 1.24, 95% confidence interval [CI]: 1.15–1.34, p < 0.001) with in-hospital mortality, whereas PSM analysis showed no significant association of diabetes with in-hospital mortality (OR: 1.08, 95%CI: 0.97–1.19, p = 0.146). Diabetes was associated with higher odds of ICU admissions in both unmatched (OR: 1.36, 95%CI: 1.25–1.47, p < 0.001) and PSM analysis (OR: 1.15, 95%CI: 1.04–1.28, p = 0.009). Conclusions: People with diabetes were more likely to be admitted to ICU compared to those without diabetes. However, advanced age and comorbidities rather than diabetes itself were associated with increased in-hospital mortality in COVID-19 patients.