Active smoking is a risk factor for type 2 diabetes (T2DM), but it is unclear whether exposure to environmental tobacco smoke (ETS) is also associated with T2DM. The effect of passive and active smoking on the 7-year T2DM incidence was investigated in a population-based cohort in Southern Germany (KORA S4/F4; 1,223 subjects aged 55-74 years at baseline in 1999-2001, 887 subjects at follow-up). Incident diabetes was identified by oral glucose tolerance tests or by validated physician diagnoses. Among never smokers, subjects exposed to ETS had an increased diabetes risk in the total sample (odds ratio (OR) = 2.5; 95% confidence interval (CI): 1.1, 5.6) and in a subgroup of subjects having prediabetes at baseline (OR = 4.4; 95% CI: 1.5, 13.4) after adjusting for age, sex, parental diabetes, socioeconomic status, and lifestyle factors. Active smoking also had a statistically significant effect on diabetes incidence in the total sample (OR = 2.8; 95% CI: 1.3, 6.1) and in prediabetic subjects (OR = 7.8; 95% CI: 2.4, 25.7). Additional adjustment for components of the metabolic syndrome including waist circumference did not attenuate any of these associations. This study provides evidence that both passive and active smoking is associated with T2DM.