Type 2 diabetes and major depression are disorders that are mutual risk factors and may share similar pathophysiological mechanisms. To further understand these shared mechanisms, the purpose of our study was to examine the biochemical basis of depression in patients with type 2 diabetes using proton MRS. Patients with type 2 diabetes and major depression (n=20) were scanned along with patients with diabetes alone (n=24) and healthy controls (n=21) on a 1.5 T MRI/MRS scanner. Voxels were placed bilaterally in dorsolateral white matter and the subcortical nuclei region, both areas important in the circuitry of late-life depression. Absolute values of myo-inositol, creatine, N-acetyl aspartate, glutamate, glutamine, and choline corrected for CSF were measured using the LC-Model algorithm. Glutamine and glutamate concentrations in depressed diabetic patients were significantly lower (p<0.001) in the subcortical regions as compared to healthy and diabetic control subjects. Myo-inositol concentrations were significantly increased (p<0.05) in diabetic control subjects and depressed diabetic patients in frontal white matter as compared to healthy controls. These findings have broad implications and suggest that alterations in glutamate and glutamine levels in subcortical regions along with white matter changes in myo-inositol provide important neurobiological substrates of mood disorders.