Background: Acute kidney injury is a common disorder worldwide, occurring in more than 13 million per year, 85% of whom live in developing countries. The high incidence of acute kidney injury among type 2 diabetic patients is a major cause of morbidity and mortality. There is limited data that address the incidence and predictors of acute kidney injury to apply evidence-based interventions in developing countries including Ethiopia specifically in the study area. Methods: Institution-based retrospective follow-up study was conducted among 420 adults with newly diagnosed type 2 diabetes patients from January 1, 2014, to December 31, 2019. Log rank test and Kaplan-Meier curve were used to compare different categories of survival probability. In a multivariable analysis, variable having a p-value <0.05 in the Cox, proportional hazard model was considered as independent predictors. Results: Overall, 19.76% (95% CI; 16.2-23.8) of the study population developed acute kidney injury, with a median follow-up period of 30.75 months. Congestive heart failure [adjusted hazard ratio (AHR): 2.89 (95% CI; 1.62, 5.13)], chronic kidney disease [AHR: 2.92 (95% CI; 1.56, 5.48)], hypertension [AHR: 2.87 (95% CI; 1.20, 6.90)], and diabetic nephropathy [AHR: 2.04 (95% CI; 1.13, 3.68)] were found to be predictors of acute kidney injury. Conclusion:The incidence of acute kidney injury among type 2 diabetes patients was high in the study area. In patients with hypertension congestive heart failure, chronic kidney disease, and diabetic nephropathy efforts should be made to diagnose AKI early and treat itin addition to better control accordingly among type 2 diabetes mellitus patients.