There is evidence that type 2 diabetes mellitus (DM) may increase postmenopausal breast cancer risk, possibly through hyperinsulinemia and/or insulin resistance. This question has not been adequately examined in an exclusively postmenopausal female population. Using Ontario health databases, this retrospective cohort study compared breast cancer incidence between women, aged 55 to 79 years, with newly diagnosed DM (N = 73,796) to women without DM (N = 391,714). After 2.1 million person-years of follow-up from 1994 to 2002, there was a significant age- and income-adjusted increase in breast cancer among women with DM (hazard ratio, HR, 1.08, 95% confidence interval, CI, 1.01-1.16, p = 0.021). Prior breast cancer prevalence was also higher in women with DM versus controls (odds ratio, OR, 1.13, 95% CI 1.08-1.18, p < 0.0001). DM did not affect survival following breast cancer. As DM care becomes more complex, it will be important to ensure that adequate primary care such as breast cancer screening is maintained.