Type 2 diabetes mellitus (T2DM) increases risk for dementia, including Alzheimer's disease (AD). Many previous studies of brain changes underlying cognitive impairment in T2DM have applied conventional structural magnetic resonance imaging (MRI) to detect macrostructural changes associated with cerebrovascular disease such as white matter hyperintensities or infarcts. However, such pathology likely reflects end-stage manifestations of chronic decrements in cerebral blood flow (CBF). MRI techniques that measure CBF may (1) elucidate mechanisms that precede irreversible parenchymal damage and (2) serve as a marker of risk for cognitive decline. CBF measured with arterial spin labeling (ASL) MRI may be a useful marker of perfusion deficits in T2DM and related conditions. We examined associations among T2DM, CBF, and cognition in a sample of 49 well-characterized nondemented older adults. Along with a standard T1-weighted scan, a pseudocontinuous ASL sequence optimized for older adults (by increasing post-labeling delays to allow more time for the blood to reach brain tissue) was obtained on a 3T GE scanner to measure regional CBF in FreeSurfer derived regions of interest. Participants also completed a neuropsychological assessment. Results showed no significant differences between individuals with and without T2DM in terms of cortical thickness or regional brain volume. However, adjusting for age, sex, comorbid vascular risk factors, and reference CBF (postcentral gyrus) older adults with T2DM demonstrated reduced CBF in the hippocampus, and inferior temporal, inferior parietal, and frontal cortices. Lower CBF was associated with poorer memory and executive function/processing speed. When adjusting for diabetes, the significant associations between lower regional CBF and poorer executive function/processing speed remained. Results demonstrate that CBF is reduced in older adults with T2DM, and suggest that CBF alterations likely precede volumetric changes. Notably, relative to nondiabetic control participants, those with T2DM showed lower CBF in predilection sites for AD pathology (medial temporal lobe and inferior parietal regions). Findings augment recent research suggesting that perfusion deficits may underlie cognitive decrements frequently observed among older adults with T2DM. Results also suggest that CBF measured with ASL MRI may reflect an early and important marker of risk of cognitive impairment in T2DM and related conditions.