The purpose of this study was to develop a new measure, the Re-Engineered Discharge for Diabetes Computer Adaptive Test (REDD-CAT) Illness Burden item bank, to evaluate the impact that a chronic condition has on independent living, the ability to work (including working at home), social activities, and relationships. Semi-structured interviews were used to inform the development of an item pool (47 items) that captured patients' beliefs about how a diagnosis of type 2 diabetes interferes with different aspects of their lives. The Illness Burden item bank was developed and tested in 225 people with type 2 diabetes mellitus. No items had sparse response option cells or problems with monotonicity; two items were deleted due to low item-rest correlations. Factor analyses supported the retention of 29 items. With those 29 remaining items, a constrained (common slope) graded response model fit assessment indicated that two items had misfit; they were excluded. No items displayed differential item functioning by age, sex, education, or socio-economic status. The final item bank is comprised of 27 items. Preliminary data supported the reliability (internal consistency and test-retest reliability) and validity (convergent, discriminant, and known-groups) of the new bank. The Illness Burden item bank can be administered as a computer adaptive test or a 6-item short form. This new measure captures patients' perceptions of the impact that having type 2 diabetes has on their daily lives; it can be used in conjunction with the REDD-CAT measurement system to evaluate important social determinants of health in persons with type 2 diabetes mellitus.