Background: Depressed type 2 diabetes mellitus patients (T2DM) show poorer compliance with treatment and self-care recommendations than non-depressed T2DM patients. This contributes to poor prognosis and accelerates diabetic-related complications including poor glucose regulation, diabetic retinopathy, neuropathy, nephropathy, and escalated healthcare expenditure. Objective: This study aimed to determine the magnitude of untreated depression and associated factors among people living with T2DM at outpatient diabetic clinic in Halaba Kulito General Hospital, Southern Ethiopia. Methods: Institution-based cross-sectional study was conducted from November 1 to December 15, 2019 at Halaba Kulito Hospital, Southern Ethiopia. We collected data by faceto-face interview with patient record review. A total of 418 type 2 diabetic patients were systematically selected and interviewed using a pretested structured questionnaire. We used a composite score of nine-items Patient Health Questionnaire (PHQ-9) to assess depression status. Descriptive statistics was used to summarize respondents' background characteristics. Logistic regression analysis was done to identify associated factors with the outcome variable. Levels of significance were set at 5% (P<0.05). Results: The finding depicted that 120 (29.3% with 95% Confidence interval (CI) = 25.0%, 34.0%) study participants satisfied diagnostic criteria for depression disorder. After controlling for confounding effect, we identified being hypertensive (Adjusted Odds Ratio (AOR) = 5.66; 95% CI: 3.24, 9.86), having no child (AOR = 3.32; 95% CI: 1.88, 5.86), and poor glycemic control (AOR = 6.23; 95% CI: 3.65, 10.54) as risk factors for untreated depression among people with type 2 diabetes. Conclusion: Findings of this study indicate that untreated depression among type 2 diabetic patients is high. Poor glycemic control, not having a child and having hypertension were among significantly associated factors with depression. These results suggest much need for interventions, including strong medication adherence and self-care activities such as exercise or healthful diet for optimal glycemic control.