Poor nutritional status is associated with osteoporosis. Prealbumin is a more sensitive marker than albumin to assess nutritional status. Therefore, the relationship between serum levels of prealbumin and osteoporosis in older adults with type 2 diabetes mellitus (T2DM) was investigated. A total of 370 older adults with T2DM were divided into two groups: older adults with osteoporosis (n = 249) and older adults without osteoporosis (n = 121). Bone mineral density (BMD) and appendicular skeletal muscle (ASM) were measured by dual-energy X-ray absorptiometry (DEXA). Serum levels of prealbumin, highly sensitive C-reactive protein (hs-CRP), interleukin-6 (IL-6), 25-hydroxyvitamin D3 [25(OH) D3] were also tested. Logistic regression analysis was performed to assess the association between prealbumin and osteoporosis. The adults with osteoporosis had lower prealbumin levels than those without osteoporosis (235.40 ± 60.66 versus 261.34 ± 55.28?mg/l, p < 0.001). The proportion of adults with prealbumin levels below the normal range was significantly higher in individuals with osteoporosis compared with those without osteoporosis (16.53% versus 4.42%, respectively). After adjusting for age, sex, body mass index (BMI), anemia, handgrip strength and skeletal muscle index (SMI), logistic regression showed that participants with lower levels of prealbumin had a higher risk of osteoporosis [odds ratio (OR): 3.85; 95% confidence interval (CI): 1.54-6.34; p = 0.004]. Our findings suggested that low levels of prealbumin were associated with an increased risk of osteoporosis in older adults with T2DM. Further longitudinal studies should be conducted to determine if there is a causative association between prealbumin and osteoporosis.