OBJECTIVE To estimate the prevalence of anemia in persons with type 2 diabetes mellitus and its role as a risk factor for the presence and the severity of diabetic retinopathy, in a population based study. METHODS In all 5999 subjects from the general population aged > or =40 years were enumerated for the study. A total of 1414 persons identified with diabetes underwent comprehensive eye examination, and stereoscopic digital fundus photography was used for diabetic retinopathy grading. All patients underwent hemoglobin estimation for detection of anemia. Univariate and multivariate analyses were done to determine the independent risk factors for anemia. RESULTS The prevalence of anemia (Hb <12 g/dl in women and <13 g/dl in men) was 12.3%. Between 40 and 49 years of age, prevalence of anemia was higher in women than in men (26.4 % vs 10.3%). Men with anemia, and not women, had 2 times the risk of developing diabetic retinopathy. Multivariate analysis revealed independent predictors for anemia: age group more than 69 years OR 2.49 (95% CI 1.44-4.30), duration of diabetes of more than 5 years OR 1.56 (1.09-2.69) and the presence of diabetic retinopathy OR 1.82 (95% CI 1.22-2.69). CONCLUSIONS Every tenth individual in a population of diabetes mellitus could be anemic. Identifying and treating anemia would make a great impact in managing microvascular complications such as diabetic retinopathy.