Adequate skeletal muscle strength is essential for physical functioning and low muscle strength is a predictor of physical limitations. Older adults with diabetes have a two- to threefold increased risk of physical disability. However, muscle strength has never been investigated with regard to diabetes in a population-based study. We evaluated grip and knee extensor strength and muscle mass in 485 older adults with diabetes and 2,133 without diabetes in the Health, Aging, and Body Composition study. Older adults with diabetes had greater arm and leg muscle mass than those without diabetes because they were bigger in body size. Despite this, muscle strength was lower in men with diabetes and not higher in women with diabetes than corresponding counterparts. Muscle quality, defined as muscle strength per unit regional muscle mass, was significantly lower in men and women with diabetes than those without diabetes in both upper and lower extremities. Furthermore, longer duration of diabetes (≥6 years) and poor glycemic control (HbA_1c >8.0%) were associated with even poorer muscle quality. In conclusion, diabetes is associated with lower skeletal muscle strength and quality. These characteristics may contribute to the development of physical disability in older adults with diabetes.