Emerging evidence suggests that diabetes may increase the risk of cancers. However, available evidence on prostate cancer is conflicting. We therefore examined the association between Type 2 diabetes and risk of prostate cancer by conducting a detailed meta-analysis of all studies published regarding this subject. PubMed database and bibliographies of retrieved articles were searched for epidemiological studies (published between 1970 and 2011), investigating the relationship between Type 2 diabetes and prostate cancer. Pooled risk ratio (RR) was calculated using random-effects model. Subgroup, sensitivity analysis and cumulative meta-analysis were also done. Forty-five studies (29 cohort and 16 case-control studies) involving 8.1 million participants and 132 331 prostate cancer cases detected a significant inverse association between Type 2 diabetes and risk of prostate cancer (RR 0.86, 95% confidence interval (CI) 0.80-0.92). For cohort studies alone, the RR was 0.87 (95% CI 0.80-0.94), and for case-control studies alone, the RR was 0.85 (95% CI 0.74-0.96). Sensitivity analysis done by excluding one outlier further strengthened our negative association (RR 0.83, 95% CI 0.78-0.87). No evidence of publication bias was observed. This meta-analysis provides strongest evidence supporting that Type 2 diabetes is significantly inversely associated with risk of developing prostate cancer.