Pioglitazone (PIO), an oral hypoglycemic agent, is used in the treatment of type 2 diabetes. Some studies have suggested that an increased risk of bladder cancer with PIO exposure, while the others reported there is no such relationship. Therefore, it is doubtful whether PIO can increase the risk of bladder cancer. The effects of PIO on DNA damage and/or transformation of human bladder cells are not fully known. We investigated the effects of PIO on cytotoxicity, DNA single and double strand breaks and repair and neoplastic transformation in human bladder cells (hTU1) treated with 10, 20, and 40 μM PIO for 24, 48 and 72 hr. PIO decreased cell viability in a concentration‐dependent manner. Increased levels of comet parameters showed that PIO and its metabolites can significantly induce DNA double strand breaks at all concentrations tested. PIO also significantly induced the formation of phosphorylated H2AX and p53 binding protein 1 foci. DNA damage was not repaired in a 24 hr recovery period. PIO can also induce malignant transformation of human bladder cells exhibiting loss of contact inhibition and anchorage independent growth. This is the first study to indicate that PIO can induce DNA damage and malignant transformation, reduce or alter the DNA repair capacity in human bladder cells. From these results, we suggest that patients with diabetes treated with PIO may have an increased risk of bladder cancer.