Background Although the association between type 2 diabetes and cancer has been reported, few epidemiological studies have been conducted in Japanese patients whose leading cause of death is cancer. We prospectively studied the incidence of site-specific cancer, risk factors for developing cancer, cancer death, and survival in Japanese patients with type 2 diabetes. Methods We followed 4923 participants (mean age, 65 years) with type 2 diabetes attending an outpatient diabetes clinic for a median of 5.3 years (follow-up rate, 99.0%). Results During the follow-up period, cancer occurred in 450 participants (incidence rate, 22.3/1000 person-years in men and 12.2/1000 person-years in women). In men, prostate cancer was the most common cancer (4.3/1000 person-years), colorectal cancer was the second (3.6/1000 person-years), and gastric cancer was the third (3.3/1000 person-years). In women, colorectal cancer was the most common cancer (2.6/1000 person-years), gastric cancer was the second (2.0/1000 person-years), and breast cancer was the third (1.4/1000 person-years). Smoking, male sex, low-density lipoprotein cholesterol, family history of cancer, and reduced intake of isoflavone daidzein were significant risk factors for developing cancer using multivariable Cox proportional hazards models. The leading cancer death was lung cancer in men and pancreatic cancer in women. The survival was the best for prostate cancer and the worst for pancreatic cancer (2-year cancer-specific survival 95.4%, 30.0%, respectively). Conclusions Since the leading cause of death in patients with type 2 diabetes is cancer in Japan, clinicians should be aware of epidemiological data regarding cancer besides diabetic complications.