Preclinical studies demonstrated that bone plays a central role in energy metabolism. However, how bone metabolism is related to the risk of diabetes in humans is unknown. We investigated the association of bone health (bone mineral density [BMD] and bone turnover markers) with incident Type‐2 Diabetes Mellitus (T2DM) based on the Hong Kong Osteoporosis Study (HKOS). A total of 993 and 7,160 participants from the HKOS were for the cross‐sectional and prospective analyses respectively. The cross‐sectional study evaluated the association of BMD and bone biomarkers with fasting glucose and HbA1c levels, while the prospective study examined the associations between BMD at study sites and the risk of T2DM by following a median of 16.8 years. Body mass index (BMI) was adjusted in all full models. Mendelian randomization (MR) was conducted for causal inference.In the cross‐sectional analysis, lower levels of circulating bone turnover markers and higher BMD were significantly associated with increased fasting glucose and HbA1c levels. In the prospective analysis, higher BMD (0.1 g/cm2) at the femoral neck and total hip was associated with increased risk of T2DM with hazard ratios (HRs) of 1.10 (95% CI: 1.03 to 1.18) and 1.14 (95% CI: 1.08 to 1.21) respectively. The presence of osteoporosis was associated with a 30% reduction in risk of T2DM compared to those with normal BMD (HR=0.70, 95% CI: 0.55 to 0.90). The MR results indicate a robust genetic causal association of estimated BMD (eBMD) with 2‐hour glucose level after an oral glucose challenge test (estimate=0.043, 95% CI: 0.007 to 0.079) and T2DM (odds ratio=1.064, 95% CI: 1.036 to 1.093). Higher BMD and lower levels of circulating bone biomarkers were cross‐sectionally associated with poor glycemic control. Moreover, higher BMD was associated with a higher risk of incident T2DM and the association is probably causal.This article is protected by copyright. All rights reserved.