The objective of this prospective study was to investigate the bidirectional relationship between diabetes and depression in women. The study population was composed of participants from the Nurses’ Health Study cohort and included 65,381 women aged 50 to 75 years followed for 10 years. During this follow-up, 2,844 incident cases of diabetes were reported. Clinical depression was defined as having diagnosed depression or using antidepressants, and depressed mood was defined as having clinical depression or severe depressive symptoms (SDS) which was calculated by a 5-item Mental Health Index score of 52 or less. Type 2 diabetes was self-reported and confirmed by a validated questionnaire. Results showed that depressed mood (SDS or clinical depression) was moderately associated with increased risk of developing type 2 diabetes after adjustment for various covariates. However, adjustments for physical activity and body mass index attenuated the relationship with a notable effect on the relative risk of developing diabetes, but remained significant for those with depressed mood. Furthermore, it was found that women taking antidepressant medications were at higher risk of developing diabetes than those with only SDS or clinical depression. On the other hand, it was also observed that diabetic patients were at increased risk of developing depression compared to nondiabetic patients even after controlling for appropriate covariates. These results suggest that the association between depression and diabetes is bidirectional. Adiposity and physical activity partly explain this association which confirms once again the necessity to encourage lifestyle modification interventions including adequate weight management and regular physical activity to reduce the risk of developing these conditions.