Bariatric surgery is becoming an accepted option for obese people with type 2 diabetes. Our aim was to assess the impact of laparoscopic adjustable gastric banding (LAGB) through a systematic review of the literature. Data was sourced from Scopus, MEDLINE and EMBASE published from 2000 through May 2011, and five unpublished studies that were performed by industry for regulatory approval were also included. Studies were selected on the basis that they provide some detail of diabetes status before and after LAGB. There were 35 studies meeting the inclusion criteria. There was considerable heterogeneity in study design, sample size, length of follow-up, attrition rates and classification of diabetes status. Weight loss was progressive over the first 2 years with a weighted average of 47 excess weight loss at 2 years. Remission or improvement in diabetes varied from 53 to 70 over different time periods. Results were broadly consistent, demonstrating clinically relevant improvements in diabetes outcomes with sustained weight loss in obese people with type 2 diabetes following LAGB surgery. However, there were significant shortcomings in the reviewed literature with few high-quality studies, inconsistent reporting of diabetes outcomes and high attrition rates. Long-term studies that address these limitations are needed.