Summary: Background: People with diabetes are at increased risk of hospitalisation, morbidity, and mortality following SARS-CoV-2 infection. Long-term outcomes for people with diabetes previously hospitalised with COVID-19 are, however, unknown. This study aimed to determine the longer-term physical and mental health effects of COVID-19 in people with and without diabetes. Methods: The PHOSP-COVID study is a multicentre, long-term follow-up study of adults discharged from hospital between 1 February 2020 and 31 March 2021 in the UK following COVID-19, involving detailed assessment at 5 and 12 months after discharge. The association between diabetes status and outcomes were explored using multivariable linear and logistic regressions. Findings: People with diabetes who survived hospital admission with COVID-19 display worse physical outcomes compared to those without diabetes at 5- and 12-month follow-up. People with diabetes displayed higher fatigue (only at 5 months), frailty, lower physical performance, and health-related quality of life and poorer cognitive function. Differences in outcomes between diabetes status groups were largely consistent from 5 to 12-months. In regression models, differences at 5 and 12 months were attenuated after adjustment for BMI and presence of other long-term conditions. Interpretation: People with diabetes reported worse physical outcomes up to 12 months after hospital discharge with COVID-19 compared to those without diabetes. These data support the need to reduce inequalities in long-term physical and mental health effects of SARS-CoV-2 infection in people with diabetes. Funding: UK Research and Innovation and National Institute for Health Research. The study was approved by the Leeds West Research Ethics Committee (20/YH/0225) and is registered on the ISRCTN Registry (ISRCTN10980107).