Mitochondria are crucial intracellular organelles where ATP and reactive oxygen species are generated via the electron transport chain. They are also where cellular fate is determined. There is a growing body of evidence that mitochondrial dysfunction plays an important role in the pathogenesis of type 2 diabetes. Mitochondrial dysfunction in pancreatic beta-cells results in impaired glucose-stimulated insulin secretion. It is also associated with decreased oxidative phosphorylation and fatty acid oxidation in insulin sensitive tissues. Variation in mitochondrial DNA (mtDNA) quantity and quality are reported to be associated with the risk of developing diabetes. A rare variant, mtDNA 3243 A>G, is well known to cause maternally inherited diabetes. Common mtDNA variants, such as mtDNA 16189 T>C and several mtDNA haplogroups, are also associated with an increased risk of diabetes, especially in Asians. The variant load, known as heteroplasmy, in a specific tissue is thought to modulate the phenotypic expression of these mtDNA variants. In this article, we review the role of mitochondrial dysfunction in the pathogenesis of diabetes and the association between mtDNA variations and risk of diabetes.