The ‘diabetic bone paradox’ suggested that type 2 diabetes (T2D) patients would have higher areal bone mineral density (BMD) but higher fracture risk than individuals without T2D. In this study, we found that the genetically predicted T2D was associated with higher BMD and lower risk of fracture in both weighted genetic risk score (wGRS) and two-sample Mendelian randomization (MR) analyses. We also identified ten genomic loci shared between T2D and fracture, with the top signal at SNP rs4580892 in the intron of gene RSPO3. And the higher expression in adipose subcutaneous and higher protein level in plasma of RSPO3 were associated with increased risk of T2D, but decreased risk of fracture. In the prospective study, T2D was observed to be associated with higher risk of fracture, but BMI mediated 30.2% of the protective effect. However, when stratified by the T2D-related risk factors for fracture, we observed that the effect of T2D on the risk of fracture decreased when the number of T2D-related risk factors decreased, and the association became non-significant if the T2D patients carried none of the risk factors. In conclusion, the genetically determined T2D might not be associated with higher risk of fracture. And the shared genetic architecture between T2D and fracture suggested a top signal around RSPO3 gene. The observed effect size of T2D on fracture risk decreased if the T2D-related risk factors could be eliminated. Therefore, it is important to manage the complications of T2D to prevent the risk of fracture.