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Abstract Background Anaemia is a global public health issue that impacts individuals of all ages in both developed and developing countries. Anaemia is common in patients with diabetes mellitus; however, it is often undiagnosed and untreated. The main aim of this study was to assess the prevalence and associated factors of anaemia in patients with type 2 diabetes mellitus admitting to a medical unit at National Hospital Kandy. Methods A descriptive, cross-sectional study was conducted in type 2 diabetes mellitus (T2DM) patients admitted to a medical ward at National Hospital Kandy (NHK). They were assessed with a pre-tested, interviewer-administered, structured questionnaire using consecutive sampling method. The data was entered and analyzed using SPSS 26. Results Total 252 patients with diabetes were included. The prevalence of anaemia in patients with T2DM was 31.3%. The corresponding values for males and females were 34.2% and 65.8% respectively. Independent predictors for anaemia among diabetic patients were older age, female gender, poor glycemic control, diabetes duration > 5 years, diabetic nephropathy, retinopathy, neuropathy, stage ≥ 3 chronic kidney disease (CKD), ischaemic heart disease (IHD), peripheral vascular disease (PVD), diabetic foot ulcers (DFU) and usage of aspirin. These were significantly associated with the prevalence anemia among patients with type 2 diabetes mellitus. Multivariate logistic regression analysis revealed that female gender, age ≥ 65 years, diabetic duration > 5 years, poor glycaemic control, stage ≥ 3 CKD, diabetic nephropathy and retinopathy were associated with greater odds for the presence of anaemia. Conclusion We found that 31.3% T2DM patients in a medical ward at NHK had previously undiagnosed anaemia. Anaemia screening during diabetes diagnosis, maintaining glycaemic control and raising patient awareness can reduce anaemia prevalence, improve patient quality of life and potentially reduce microvascular complications.