Psychological stress is common in many physical illnesses and is increasingly recognized as a risk factor for disease onset and progression. An emerging body of literature suggests that stress has a role in the aetiology of type 2 diabetes mellitus (T2DM) both as a predictor of new onset T2DM and as a prognostic factor in people with existing T2DM. Here, we review the evidence linking T2DM and psychological stress. We highlight the physiological responses to stress that are probably related to T2DM, drawing on evidence from animal work, large epidemiological studies and human laboratory trials. We discuss population and clinical studies linking psychological and social stress factors with T2DM, and give an overview of intervention studies that have attempted to modify psychological or social factors to improve outcomes in people with T2DM.