Aims: To examine the appropriateness of medicine use and potentially high-risk prescribing before and after hospitalization for diabetes. Methods: A retrospective cohort study of patients hospitalized for diabetes was conducted using administrative data from the Australian Government Department of Veterans’ Affairs for the period between 1 January 2012 and 31 December 2012. The appropriateness of medicine use and potentially high-risk prescribing, including hyper-polypharmacy and associated treatment conflicts, were examined for the 120-day periods before and after hospitalization. Results: A total of 876 patients were hospitalized for a diabetes-related complication. Of these, 25% were not dispensed an antidiabetic medicine 4 months before hospitalization and 25% had not had their HbA1c levels measured in the preceding 6 months. The use of antidiabetic medicines increased to 85% after hospitalization, with a 25.6% relative increase (95% CI 10.9–42.1) in the proportion of those dispensed insulin. The prevalence of high-risk prescribing before hospital admission was high; 70% had > 10 medicines dispensed, a third had at least one treatment conflict and half were dispensed a potentially inappropriate medicine. The use of long-acting sulphonylureas and corticosteroids had relative decreases of 46.0% (95% CI 17.0–64.9) and 29.9% (95% CI 8.8–46.0), respectively. Few changes in other high-risk prescribing patterns were observed after discharge. Conclusions: This study has identified poor medication-related care and, in particular, high-risk-prescribing in people subsequently hospitalized for diabetes. While diabetes medicine use improved after hospitalization, there was little change in potentially inappropriate medicine use, which suggests that an opportunity to improve medication use in this older vulnerable population has been missed.