Background: It is estimated that diabetes mellitus affects 4 percent of the world's population, almost half of whom have some degree of diabetic retinopathy at any given time. Elevated serum lipid levels are associated with an increased risk of retinal hard exudate in persons with diabetic retinopathy. Therefore the current study was undertaken to determine the association of serum lipid profile with diabetic retinopathy and its severity. Subjects and Methods: One hundred fifty diabetic patients, out of these, 75 diabetic patients with retinopathy served as the study group I and 75 diabetic patients with no retinopathy formed group II (control group). Simultaneously, 75 age and sex matched healthy subjects were also studied as controls (group III). Serum total cholesterol, serum triglyceride, serum low density lipoprotein and serum high density lipoprotein were measured by using enzymatic method and autoanylyser. Fasting blood sugar and post prandial blood sugar were estimated by using GOD POD method. Results: Most of the patients in Group I had some degree of visual impairment. However there was no statistical significance with p >0.05. The mean value of total cholesterol was higher in both group I and group II with value being higher in group1 (229.09mg/dl) as compared to group II (215.32mg/dl). Triglyceride levels also followed the similar trend with group I having mean value of 238.95mg/dl and group II having 179.93 mg/dl. But only total cholesterol value had statistical significance p < 0.05. Conclusion: The present study demonstrated statistically significant correlation between diabetic retinopathy and hypercholesterolemia. Increased cholesterol level was significantly associated with the occurrence of all grades of retinopathy especially severe NPDR, very severe NPDR and PDR. No correlation was found between lipid profile and visual acuity. These data suggest that hyperlipidaemia should be promptly treated in diabetic patients.