Purpose: Diabetes mellitus (DM) patients are more likely to experience sleep disturbances than normal. Sleep disturbances may contribute to the development of diabetic retinopathy (DR) by higher inflammatory markers in circulation. We investigated the association between sleep quality and DR. Methods: Institutional case control study with type 2 DM patients of <10 years duration and HbA1c ⩽8%; 70 cases with DR and 70 controls without DR (NODR) (power 0.8). Sleep quality was assessed by Pittsburg sleep quality index (PSQI) questionnaire and compared. Results: Cronbach’s alpha was 0.777 with high internal homogeneity. Global PSQI score in DR (7.44 ± 3.99; 95%CI 6.88, 9.42) was more than in NODR (4.30 ± 3.26; 95%CI 3.87, 6.45) ( p < 0.001). All sleep disturbance scores were more in DR except sleep duration. Poor sleep (PSQI score>5) was more prevalent in DR ( p = 0.000) and associated with increasing DR severity ( p = 0.026). Normal sleep latency was recorded in 78.57% and 42.85% patients in NODR and DR respectively ( p < 0.001). Severe difficulty in subjective sleep quality ( p = 0.024), sleep latency ( p = 0.002) and daytime dysfunction ( p < 0.001) was seen more in DR. Elevated daytime dysfunction was observed with increasing DR severity ( p = 0.008). The optimal cut-off for global PSQI score and sleep latency for DR was 5.5 (OR: 5.97; 95%CI 2.86, 12.47) and 25 min(OR: 4.89; 95%CI 2.32, 10.26) respectively. Conclusion: Sleep disturbance is positively associated with DR. Our study identifies cut off value for DR of a modifiable parameter like sleep latency. It emphasizes the need of sleep quality assessment for risk assessment of DR.