OBJECTIVE To develop a type 2 diabetes hip fracture risk tool in community-based patients, to validate it in an independent cohort, and to compare its performance against the only published prediction equation to include type 2 diabetes as a risk factor (QFracture). RESEARCH DESIGN AND METHODS Hip fracture hospitalizations in 1,251 participants with type 2 diabetes aged 40–89 years from the longitudinal Fremantle Diabetes Study Phase I (FDS1) were ascertained between entry (1993–1996) and end-2012. Competing risk regression modeling determined independent predictors of time to first fracture over 10 years and the coefficients incorporated in a risk model. The model was validated in 286 participants with type 2 diabetes from the Busselton Health Study (BHS). RESULTS Fifty FDS1 participants (4.0%) experienced a first hip fracture during 10,306 person-years of follow-up. Independent predictors of fracture were older age, female sex, lower BMI, peripheral sensory neuropathy, and estimated glomerular filtration rate <45 mL/min/1.73 m2. The model-predicted mean 10-year incident fracture risk was 3.3% with good discrimination, calibration, and accuracy. For a 3% cutoff, sensitivity was 76.0%, specificity 71.9%, positive predictive value (PPV) 10.1%, and negative predictive value (NPV) 98.6%. Model performance in the small BHS sample was also good (sensitivity 66.7%, specificity 79.8%, PPV 6.2%, and NPV 99.2%). QFracture performed well in FDS1 but required availability of 25 variables. CONCLUSIONS The FDS1 hip fracture risk equation is a simple validated adjunct to type 2 diabetes management that uses variables that are readily available in routine care.