OBJECTIVES: Diabetes is a chronic and potentially disabling disease that represents an important public health concern. Persons with diabetes are at increased risk of developing long-term complications and the treatment of diabetes complications is the most expensive form of diabetes care. Complications of diabetes also compound the economic cost of treating the condition which affects the individuals, families and society. This study aimed at calculating the cost of complications of type II diabetes in Pakistan. METHODS: Prevalence based Cost-of-Illness study was conducted in out-patient clinics of Karachi, Pakistan in 2006. The study population was all the persons with type II diabetes who attended the clinics.. A pre-tested questionnaire was used to collect the data from 345 randomly selected persons with diabetes. RESULTS: Of the total sample 72% had at-least one co-morbidity/complication and 48% had more than 1 co-morbidity/complications. From the complications, 55% had hypertension followed by dyslipidemia (30%). The mean direct cost of those diabetics who had no  complication (only 28% of the sample) was Rs. 1226 (~US$20) compared to those who have one or more diabetes complication that is Rs 1779 (~US$ 30) and this difference was statistically significant (P<0.005). About 40% of those who have one or more co-morbidity are not taking any medication for their health condition, which may further compound this cost in the future. CONCLUSIONS: It has been recognized that health care expenditures related to the complications of diabetes account for a substantial proportion of the public health care budget. Reducing the risks of developing complications can improve the quality of life, increase life expectancy and reduce the overall cost to society. In this era of scarce resources and rising costs, it is critical to have an understanding of the economics of diabetes and its complications in order to develop and implement sound public health and prevention policies.