There is limited information with regard to bone health in Indian postmenopausal women with type 2 diabetes. We studied the bone mineral density (BMD), trabecular bone score (TBS), prevalent vertebral fractures (VF), proximal hip geometry, and bone mineral biochemistry in ambulatory postmenopausal women with and without type 2 diabetes mellitus (T2DM). This was a cross-sectional study conducted at a tertiary care center. BMD, TBS, prevalent vertebral fractures, and hip structural analysis (HSA) were assessed using a dual-energy X-ray absorptiometry (DXA) scanner. Bone mineral biochemical profiles were also studied. A total of 202 ambulatory postmenopausal women known to have type 2 diabetes mellitus with mean (SD) age of 65.6 (5.2) years and 200 age and BMI matched non-diabetic controls with mean (SD) age of 64.9 (4.7) years were recruited from the local community. Although the prevalence of lumbar spine osteoporosis was significantly lower among cases (30.7%) as compared to controls (42.9%), the prevalence of degraded bone microarchitecture (TBS < 1.200) was significantly higher among cases (51%) than in controls (23.5%); P < 0.001. Prevalent vertebral fractures were not significantly different in cases and controls. The various geometric indices of the proximal hip were significantly impaired in subjects with diabetes as compared to controls. This study may highlight the utility of the trabecular bone score and hip structural analysis in subjects with diabetes, where the bone mineral density tends to be paradoxically high, and may not adequately predict fracture risk.