Background: The prevalence of diabetes mellitus continues to increase globally. Furthermore, it is projected that healthcare expenditure on this epidemic will mount to US$490 billion in 2030. Information on the economic burden of diabetes care in Saudi Arabia is largely lacking. Objectives: This retrospective observational study evaluated the direct medical cost of type 2 diabetes mellitus (T2DM) in a Saudi population in relation to glycemic control at a governmental institution from a payer's perspective. Methods: Three hundred subjects attending a university hospital were classified into three groups (n = 100 each) based on HbA1c values to <7 %, 7-9 %, and >9 %. The total direct medical costs were calculated for drug therapy, diagnostic procedures, hospitalization, and outpatient visits. The year of valuation for the costings was 2010/2011. Results: The total annual direct medical cost per group was found to be US$1,384.19 for HbA1c <7 %, US$2,036.11 for HbA1c 7-9 %, and US$3,104.86 for HbA1c >9 % (p < 0.001). There was also a statistically positive relationship in the total care cost of diabetic patients and the number of co-morbidities (p < 0.001). A direct association of the cost of medications that have been disbursed for diabetic patients and the medical specialty of the treating physician (r = 0.390; p < 0.0001), and the cost of laboratory analyses (r = 0.351; p < 0.0001), was observed as also between the cost of laboratory diagnosis and days of hospitalization (r = 0.478; p < 0.0001). Multivariate analysis showed that the relationship between HbA1c and total cost is independent of age and gender, while co-morbidities remain as a significant predictor for the total cost. Conclusions: Collectively, the estimated direct annual medical cost of diabetes care in Saudi Arabia would be enormous. The current study offers more insight into the economic burden of diabetes on the country. © 2013 Springer International Publishing Switzerland.