To investigate the association between newly developed type 2 diabetes (T2D) and incident psychopharmacological treatment and psychiatric hospital contact. Via Danish registers, we identified all 56 640 individuals from the Central and Northern Denmark Regions with newly developed T2D (defined by the first HbA1c measurement ≥6.5%) in 2000–2016 as well as 315 694 age- and sex-matched controls (without T2D). Those having received psychopharmacological treatment or having had a psychiatric hospital contact in the 5 years prior to the onset of T2D were not included. For this cohort, we first assessed the 2-year incidence of psychopharmacological treatment and psychiatric hospital contact. Secondly, via Cox regression, we compared the incidence of psychopharmacological treatment/psychiatric hospital contact among individuals with T2D to propensity score-matched controls – taking a wide range of potential confounders into account. Finally, via Cox proportional hazards regression, we assessed which baseline (T2D onset) characteristics were associated with subsequent psychopharmacological treatment and psychiatric hospital contact. A total of 8.3% of the individuals with T2D initiated psychopharmacological treatment compared to 4.6% of the age- and sex-matched controls. Individuals with T2D were at increased risk of initiating psychopharmacological treatment compared to the propensity score-matched controls (HR = 1.51, 95% CI = 1.43–1.59), whereas their risk of psychiatric hospital contact was not increased to the same extent (HR = 1.14, 95% CI = 0.98–1.32). Older age, somatic comorbidity, and being divorced/widowed were associated with both psychopharmacological treatment and psychiatric hospital contact following T2D. Individuals with T2D are at elevated risk of requiring psychopharmacological treatment.