Diabetes increases the likelihood of developing depression and vice versa. Research on this bidirectional association has somewhat managed to delineate the interplay among implicated physiological processes. Still, further exploration is required in this context. This review addresses the comorbidity by investigating suspected common pathophysiological mechanisms. One such factor is psychological stress which disturbs the hypothalamic–pituitary–adrenal axis causing hormonal imbalance. This includes elevated cortisol levels, a common biomarker of both depression and diabetes. Disrupted insulin signaling drives the hampered neurotransmission of serotonin, dopamine, and norepinephrine. Also, adipokine hormones such as adiponectin, leptin, and resistin and the orexigenic hormone, ghrelin, are involved in both depression and T2DM. This disarray further interferes with physiological processes encompassing sleep, the gut–brain axis, metabolism, and mood stability. Behavioral coping mechanisms, such as unhealthy eating, mediate disturbed glucose homeostasis, and neuroinflammation. This is intricately linked to oxidative stress, redox imbalance, and mitochondrial dysfunction. However, interventions such as psychotherapy, physical exercise, fecal microbiota transplantation, and insulin‐sensitizing agents can help to manage the distressing condition. The possibility of glucagon‐like peptide 1 possessing a therapeutic role has also been discussed. Nonetheless, there stands an urgent need for unraveling new correlating targets and biological markers for efficient treatment.