BackgroundThere is limited data on prevalence and outcome of prediabetes (PDM) and incidence of type 2 diabetes mellitus (T2DM) from South Asia. We investigated this in an urban, adult population in Sri Lanka that was followed-up for seven years. Methods The study population (selected by age-stratified random sampling from the community) was initially screened in 2007 and re-evaluated in 2014. On both occasions they were assessed by structured interview, anthropometric measurements, liver ultrasound, biochemical and serological tests. Results In the original cohort of 2985 recruited in 2007 [54.8% women, median age (IQR) 53 (47-59)], 737 had T2DM [baseline prevalence 24.7% (95% CI: 23.1–26.2)] and 525 (17.7%) had PDM [54.1% women, median age (IQR) 56 (50-60)]. 2148/2985 (71.6%) attended follow-up in 2014 [57.5% women; median (IQR) 60 (54–66) years], which included 1650 who did not have T2DM in 2007. By 2014, 436/1650 (27.6%) had developed new T2DM [annual incidence 3.9% (95% CI:3.0-4.9). On logistic regression, PDM, central obesity, dyslipidemia and non-alcoholic fatty liver disease (NAFLD) showed significant association with incident T2DM. Of 525 with PDM in 2007, 365 (69.5%) presented for follow up in 2014; 147 (40.3%) remained in PDM, 201 (55.1%) had progressed to T2DM and 17 (4.6%) had reverted to normal. Annual conversion rate of PDM to T2DM was 7.9%. Increase in waist circumference and decrease in HDL predicted progression to T2DM. ConclusionsPresence of components of the metabolic syndrome at baseline predicted new-onset T2DM and conversion of PDM to T2DM. Targeted lifestyle interventions are essential for individuals with metabolic risk to prevent incident T2DM.