Objective - The mechanisms responsible for the increased cardiovascular disease risk that accompanies type 2 diabetes (T2D) remain poorly understood. It is commonly held that endothelial dysfunction and low-grade inflammation can explain, at least in part, why deteriorating glucose tolerance is associated with cardiovascular disease. However, there is no direct evidence for this contention. Methods and Results - In this population-based study ( n = 631), T2D was cross-sectionally associated with both endothelial dysfunction and low-grade inflammation, whereas impaired glucose metabolism (IGM) was associated only with low-grade inflammation. These findings were independent of other risk factors that accompany T2D or IGM. During a follow-up of 11.7 years ( median; range 0.5 to 13.2 years), low-grade inflammation was associated with a greater risk of cardiovascular mortality ( hazard ratio, 1.43 [ 95% CI, 1.17 to 1.77] per 1 SD difference). For endothelial dysfunction, the association with cardiovascular mortality was stronger in diabetic ( hazard ratio, 1.87 [ 95% CI, 1.43 to 2.45]) than in nondiabetic individuals ( hazard ratio, 1.23 [ 95% CI, 0.86 to 1.75]; P interaction = 0.06). Finally, T2D-associated endothelial dysfunction and low-grade inflammation explained approximate to 43% of the increase in cardiovascular mortality risk conferred by T2D. Conclusions - These data emphasize the necessity of randomized controlled trials of strategies that aim to decrease cardiovascular disease risk by improving endothelial function and decreasing low-grade inflammation, especially for T2D patients.