Objectives: Sight loss due to diabetic retinopathy (DR) is preventable by early detection and treatment. Digital retinal imaging is the most widely practiced method of screening of DR. Poor quality of images is a major hinder to implement systematic DR screening using digital retinal imaging in low- and middle-income countries with a high prevalence of lens opacities. We aimed to identify the proportion of ungradable images using hand-held retinal imaging and predictors of image gradability in a DR screening feasibility study conducted in Sri Lanka. Material and Methods: The present study is a retrospective data analysis of a validation study conducted to assess the diagnostic test accuracy of a held-held digital retinal imaging model integrated into a tertiary level medical clinic. Two selected physician graders underwent formal training to assess retinal image quality using a “four-quadrant method of assessing gradability.” The procedure was a subjective image quality assessment performed by the physician graders manually, that is, images with more than 50% of the field with poor clarity and not suitable for retinopathy grading were classified as ungradable. Two-field (Field-1: macula centered, Field-2: disc centered) non-mydriatic and mydriatic retinal images were captured (Type of camera: Zeiss-Visuscout 100®, Germany) in a consecutive sample of people with diabetes attended for routine medical care and assessed for quality and graded by two independent physician graders on-site. The reference test was a mydriatic biomicroscopic examination conducted at a separate eye clinic by an experienced specialist retinologist. Mixed model regression analysis was conducted to assess the predictors of gradability. Results: A total of 700 individuals (5508 gradability data points) were included in the study. The proportion of ungradable images in non-mydriatic imaging was 30% for Grader 1 and 24% for Grader 2 and went down to 7% and 5%, respectively, for Grader 1 and 2 after dilating the pupils using mydriatic agents. Non-mydriatic images had almost 20 times higher odds (odds ratio [OR] 19.7, 95% confidence interval [CI] 15.1–25.8) of being rated as ungradable compared to mydriatic images. With the increase of each year in age, the odds of having ungradable digital retinal images in a patient increased by 7% (OR 1.07, 95% CI 1.05–1.09). For visual acuity increase in each level of the Log-MAR scale, the odds of having ungradable images increased by 40% (OR 1.40, 95% CI 1.30–1.51). In lens opacity, 54% higher odds of ungradability were observed when present nuclear opalescence (OR 1.54, 95% CI 1.39–1.70) and posterior subcapsular opacity (OR 1.54, 95% CI 1.24–1.92). Conclusion: Non-mydriatic methods may not be suitable as a primary DR screening strategy in countries with a high prevalence of cataracts. Increasing age, poor visual acuity, and the presence of lens opacity are factors that would affect image quality. The capacity to deliver services for managing cataracts may be an important determinant in achieving effective coverage of digital surveillance of DR in low- and middle-income countries.