Cognitive impairment is the major health problem particularly in elderly with type 2 diabetes mellitus. The aim of this study was to determine the magnitude of cognitive impairment and associated factors among type 2 diabetics in Jimma University Specialized Hospital, 2016. Comparative cross sectional study was employed among 105 type 2 diabetes mellitus patients and 105 matched healthy individuals at Jimma University Specialized Hospital using consecutive sampling technique. Mini-mental state examination scale was used to measure cognitive function. Frequency, independent t-test, and logistic regression were carried to present data. Variables with p≤0.05 were considered as significant association between dependent and outcome variables. Prevalence of cognitive impairment among type 2 diabetes mellitus was higher than healthy individuals (53.3%). Age, occupations, fasting blood glucose level, and type of treatment options for diabetics were the predictors of cognitive impairment among type 2 diabetes mellitus patients. The prevalence of cognitive impairment among type 2 diabetes mellitus patients was significantly higher than non-diabetes study participants. This study was intended to offer information on cognitive impairment and associated factors among type 2 diabetes mellitus patients to concerned bodies in designing diagnosis and management strategies particularly focusing on counseling in preventing risk factors.