OBJECTIVE To examine whether type 2 diabetes is associated with microstructural abnormalities in specific cerebral white matter tracts and to relate these microstructural abnormalities to cognitive functioning. RESEARCH DESIGN AND METHODS Thirty-five nondemented older individuals with type 2 diabetes (mean age 71 ± 5 years) and 35 age-, sex-, and education-matched control subjects underwent a 3 Tesla diffusion-weighted MRI scan and a detailed cognitive assessment. Tractography was performed to reconstruct several white matter tracts. Diffusion tensor imaging measures, including fractional anisotropy (FA) and mean diffusivity (MD), were compared between groups and related to cognitive performance. RESULTS MD was significantly increased in all tracts in both hemispheres in patients compared with control subjects (P < 0.05), reflecting microstructural white matter abnormalities in the diabetes group. Increased MD was associated with slowing of information-processing speed and worse memory performance in the diabetes but not in the control group after adjustment for age, sex, and estimated IQ (group × MD interaction, all P < 0.05). These associations were independent of total white matter hyperintensity load and presence of cerebral infarcts. CONCLUSIONS Individuals with type 2 diabetes showed microstructural abnormalities in various white matter pathways. These abnormalities were related to worse cognitive functioning.