Background People with severe mental illnesses (SMIs) have reduced life expectancy compared with the general population. Diabetes is a contributor to this disparity, with higher prevalence and poorer outcomes in people with SMI. Aim To determine the impact of SMI on healthcare processes and outcomes for people with type 2 diabetes (T2DM). Design and setting Retrospective, observational, matched, nested, case–control study conducted in England using patient records from the Clinical Practice Research Datalink, linked to Hospital Episode Statistics. Method A range of healthcare processes (primary care consultations, physical health checks, and metabolic measurements) and outcomes (prevalence and hospitalisation for cardiovascular disease [CVD], and mortality risk) were compared for 2192 people with SMI and T2DM (cases) with 7773 people who had diabetes alone (controls). Sociodemographics, comorbidity, and medication prescription were covariates in regression models. Results When compared with results for participants with T2DM only, SMI was associated with increased risk of all-cause mortality (hazard ratio [HR] 1.919, 95% confidence interval [CI] = 1.602 to 2.300) and CVD-specific mortality (HR 2.242, 95% CI = 1.547 to 3.250), higher primary care physician consultation rates (incidence rate ratio [IRR] 1.149, 95% CI = 1.111 to 1.188), more-frequent checks of blood pressure (IRR 1.024, 95% CI = 1.003 to 1.046) and cholesterol (IRR 1.038, 95% CI = 1.019 to 1.058), lower prevalence of angina (odds ratio 0.671, 95% CI = 0.450 to 1.001), more emergency admissions for angina (IRR 1.532, 95% CI = 1.069 to 2.195), and fewer elective admissions for ischaemic heart disease (IRR 0.682, 95% CI = 0.508 to 0.915). Conclusion Monitoring of metabolic measurements was comparable for people with T2DM who did, and did not, have SMI. Increased mortality rates observed in people with SMI may be attributable to underdiagnosis of CVD and delays in treatment.