There is a controversy regarding whether depression and type 2 diabetes are causally linked. To assess this issue, we review key findings for the association between depression and diabetes, and its underlying mechanisms. Findings from meta-analyses of cohort studies show a modestly sized bidirectional association between depression and type 2 diabetes (ie, depression predicts diabetes onset and diabetes predicts future depression). However, depression-related biological alterations in the hypothalamic-pituitary-adrenal cortex axis and the sympathetic nervous system, and subclinical inflammation, are not consistently linked with increased diabetes risk. The evidence for an association between depression and glycaemic traits (eg, glucose, insulin, insulin sensitivity, and insulin secretion) is also mixed. Diabetes increases the risk of depression to the same extent as do other chronic disorders (eg, cardiac diseases, osteoarthritis, lung disease, and poor hearing). At present, the available evidence suggests that pathophysiological changes preceding the onset of type 2 diabetes might not cause depression, nor might depression directly increase the risk of developing type 2 diabetes. Despite insufficient robust causal evidence, treating physicians should be aware of the co-occurrence of depression and type 2 diabetes.