OBJECTIVE The nature of the independent relationship between polycystic ovary syndrome (PCOS) and type 2 diabetes remains unclear. Few studies have aimed to clarify this relationship independent of obesity in longitudinal population-based cohorts. RESEARCH DESIGN AND METHODS We used the Australian Longitudinal Study on Women’s Health (ALSWH) (2000–2015) database to estimate nationwide incidence rates and predictors of type 2 diabetes among women aged 18–42 using person-time and survival analysis. RESULTS Over a follow-up of 1,919 person-years (PYs), 186 women developed type 2 diabetes. The incidence rate was 4.19/1,000 PYs and 1.02/1,000 PYs (P < 0.001) in PCOS and control subjects. On subgroup analyses across healthy-weight, overweight, and obese categories of women, the incidence rates for type 2 diabetes were 3.21, 4.67, and 8.80, whereas incidence rate ratios were 4.68, 3.52, and 2.36 (P < 0.005) in PCOS versus age-matched control subjects. PCOS was one of the most influential predictors for type 2 diabetes in the entire cohort (hazard ratio 3.23, 95% CI 2.07–5.05, P < 0.001) adjusting for BMI, education, area of residence, and family history of type 2 diabetes. CONCLUSIONS Women with PCOS are at an increased risk of type 2 diabetes, irrespective of age and BMI. The incidence of type 2 diabetes increases substantially with increasing obesity; yet, PCOS adds a greater relative risk in lean women. Based on the overall moderate absolute clinical risk demonstrated here, guideline recommendations suggest type 2 diabetes screening every 1–3 years in all women with PCOS, across BMI categories and age ranges, with frequency influenced by additional type 2 diabetes risk factors.