Diabetic peripheral neuropathy (DPN) is a common complication of type 2 diabetes mellitus (DM). DPN causes a decrease in proprioception, which could reduce balance ability. We investigated the association of impaired vibration sense, based on vibration perception threshold (VPT), with assessments of balance and other factors affecting balance impairment and fear of falling in patients with type 2 DM. Sixty-three patients with DM aged >50 years were categorized as having normal vibration sense (NVS; n = 34) or impaired vibration sense (IVS; n = 29) according to a VPT value of 8.9 μm. The following parameters were evaluated for all patients: postural steadiness through the fall index using posturography, functional balance through the Berg Balance Scale (BBS), the Timed Up and Go test (TUG), and fear of falling through the Falls Efficacy Scale-International (FES-I). The IVS group showed a significantly greater balance impairment in fall index, BBS, and TUG, as well as greater fear of falling on the FES-I than the NVS group. The linear regression analysis showed that the fall index was associated only with the VPT, whereas BBS, TUG, and FES-I were associated with the VPT, age, and/or lower extremity muscle strength. VPT, age, and/or muscle strength were identified as predictors of balance and fear of falling in patients with type 2 DM. Therefore, along with age and lower extremity strength, the VPT can be useful for balance assessment in patients with type 2 DM.