Background: Type 2 Diabetes Mellitus (T2DM) is a highly prevalent disease with a chronic nature and poses a significant health burden worldwide, with no exception in Pakistan. Hence, this study aimed to explore the financial burden of T2DM in Pakistan through cost of illness analysis. Methods: A prevalence-based, cross-sectional study was conducted using a structured data collection tool from the patient’s perspective. Through structured interviews by trained data collectors, the data regarding direct medical costs, direct non-medical costs, and indirect costs were collected and further verified through prescriptions and bills. After testing the normality of data, mean and median with interquartile range were used to present cost data, while non-parametric tests, i.e., the Mann–Whitney U test and the Kruskal–Wallis test, were used to assess factors associated with costs, as cost data were not normally distributed. Results: The study included 522 participants, with a majority being female (54%) and aged between 41 and 60 years (64%). The mean annual total cost per patient was USD 235.1 (median = USD 162.8), comprising direct medical costs, 93.2% (mean = USD 219.2; median = USD 150.0), direct non-medical costs, 5.3% (mean = USD 12.4; median = USD 7.1), and indirect costs, 1.5% (mean = USD 3.5; median = USD 1.9). Costs were significantly higher for patients with advanced age, high literacy, higher household incomes, duration of diabetes, more than one complication, and using combination therapy. Conclusions: The economic burden of T2DM in Pakistan is substantial, with medication costs being the largest component. Effective management strategies and policy interventions are crucial to mitigate this burden and improve the economic and health outcomes for diabetic patients.