Context: There is emerging evidence of various adverse effects of chronic proton pump inhibitor (PPI) therapy. Objective: To assess the impact of PPI use on nephropathy and cardiovascular disease (CVD) risk in type 2 diabetes. Design: Longitudinal observational study. Setting: Urban-dwelling community. Patients: Patients with type 2 diabetes from the Fremantle Diabetes Study Phase II and on stable renin-angiotensin system blocking therapy were divided into those remaining untreated with a PPI (group 1, n = 686), on PPI therapy throughout (group 2, n = 174), and commencing (group 3, n = 109) or discontinuing regular PPI therapy (group 4, n = 67) during the 2 years between assessments. Main Outcome Measures: Changes (Δ) in urinary albumin/creatinine ratio (uACR), estimated glomerular filtration rate (eGFR), and predicted 5-year CVD risk. Results: There were no statistically significant differences in ΔuACR between groups [analysis of variance (ANOVA), P = 0.36], but ΔeGFR was different (ANOVA, P = 0.002), with group 3 exhibiting a greater reduction than group 1 [adjusted mean difference (95% confidence interval), -2.7 (-4.5 to -0.8) mL/min/1.73 m2; P = 0.005]. The Δ5-year CVD risk showed a similar pattern (ANOVA, P < 0.001), with group 3 having a greater increase than group 1 [adjusted mean difference (95% confidence interval), 1.7% (0.6% to 2.8%); P = 0.002]. Conclusions: Although PPI use was not associated with a sustained adverse effect on uACR, the association between PPI initiation and both worsening nephropathy and increasing 5-year CVD risk has potential clinical implications in type 2 diabetes.