Declarative memory impairment is frequently reported among adults with type 2 diabetes mellitus (T2DM), who also demonstrate hippocampal volume reduction. Our goals were to ascertain whether emotional memory, which is mediated by neural circuits overlapping those of declarative memory, is also affected. In addition we wanted to characterize cerebral white matter (WM) involvement in T2DM. We studied 24 middle-aged and elderly patients with T2DM who were free of obvious vascular pathology or a psychiatric disorder, and 17 age- and education-matched healthy individuals with no evidence of insulin resistance. We examined emotional and neutral memory and performed a whole-brain voxelwise WM assessment utilizing diffusion tensor imaging (DTI). We found clear evidence of impairment in declarative memory among diabetic subjects and in addition found some preliminary support to suggest a possible blunting of the memory facilitation by emotional material among female but not male diabetics. This report is also the first DTI assessment among individuals with T2DM, which after accounting for overt WM damage, revealed diffuse but predominantly frontal and temporal WM microstructural abnormalities, with extensive involvement of the temporal stem. Hierarchical regression analyses demonstrated that immediate, but not delayed, emotional memory performance was explained by temporal stem FA, independent of age, poor metabolic regulation, and systolic blood pressure. Given that the temporal lobe memory networks appear to be particularly vulnerable to the deleterious effects of T2DM, this may help explain the observed memory impairments among diabetics. Future efforts should better clarify, with a larger sample, whether emotional memory is affected in adults with T2DM and whether there are clear gender effects.