Diabetes as the dominant cause of ESRD is also the major cause of renal anaemia. However, most patients with diabetic kidney disease will succumb to co-morbid vascular disease or heart failure before developing severe renal impairment. In these patients, anaemia is also common finding, with a 2-3 times greater prevalence and earlier onset than in patients with renal impairment from other causes. We have recently shown that at least one in five outpatients with type 1 or type 2 diabetes in tertiary referral clinics have anaemia, in whom it constitutes a significant additional burden. Impaired renal erythropoietin release in response to declining haemoglobin levels appears to be the major contributor to anaemia in diabetes. This may be due to the predominance of damage to cells and vascular architecture of the renal tubulointerstitium associated with diabetic nephropathy that may be apparent, like albuminuria, before demonstrable changes in renal function. In addition, systemic inflammation, autonomic neuropathy and reduce red cell survival may also compound anaemia in diabetes. While anaemia may be considered a marker of diabetic kidney disease, reduced haemoglobin levels, even within the normal range, identify diabetic patients with an increased risk of hospitalisation and mortality. Anaemia may also be significant in determining the outcome of heart failure and hypoxia-induced organ damage in patients with diabetes. Upcoming studies will determine whether correction of anaemia in diabetes will lead to improved outcomes in these patients.