Objective: To investigate the predictive factors associated with physical impairment among older patients with type 2 diabetes mellitus (T2DM) in Japan and to examine the potential impact of physical impairment on patient-reported health outcomes in this population. Methods: A cross-sectional analysis was conducted using patient-reported data from the 2012-2014 Japan National Health and Wellness Survey. Physical impairment was measured using the Physical Component Summary (PCS) score of the Short-Form 36-Item Health Survey (SF-36) three-component model (using Japanese norms). Older T2DM patients (!65 years old; n ¼ 1511) were dichotomized into physically impaired (PCS 25th percentile; n ¼ 378) and non-physically impaired (PCS > 25th percentile; n ¼ 1133). Work productivity (absenteeism, presenteeism and overall work impairment), activity impairment and healthcare resource utilization were compared between these groups. Results: Age, female sex, low and high body mass index (BMI), diabetes-related complications, cardiovascular events, unawareness of having hypoglycemic events in the past 3 months, and lack of regular exercise were significant factors associated with physical impairment in multivariable analysis. The physically impaired group reported significantly more regular outpatient visits (13.48 vs. 10.16, respectively, p < .001), 1% or greater absenteeism (16.7% vs. 4.1%, p ¼ .005), greater presenteeism (27.8% vs. 12.2%, p ¼ .001), overall work impairment (30.0% vs. 13.0%, p ¼ .001) and overall activity impairment (39.5% vs. 17.2%, p < .001) than the non-physically-impaired group after adjusting for covariates. Conclusions: This study identified age, BMI, diabetes-related comorbidities, history of cardiovascular events and lack of exercise as key predictors associated with physical impairment in older patients with T2DM in Japan, which predicted low work productivity as well as activity impairment. This study provides support that physical impairment in patients with T2DM may lead to low work productivity and activity impairment.