Mental health disorders, such as schizophrenia, bipolar disorder, and anxiety and depression disorder, are associated with increased risk for type 2 diabetes. Studies report varying rates of type 2 diabetes among people with severe mental illness, ranging 1.5–5.0-fold elevated risk than in the general population, whereas the etiology is complex and multifactorial. Among other factors, this is partly attributed to adverse metabolic effects of antipsychotic and antidepressant medications. This review aims to summarize literature evidence on the diabetogenic effect of commonly used psychiatric medications. From the first generation antipsychotics, thioridazine and clorpromazine are associated with high, while fluphenazine, aloperidol, and perphenazide with low risk for type 2 diabetes. From the second generation antipsychotics, the highest risk for type 2 diabetes has been found with olanzapine and clozapine, while the risk is low to moderate with the other medications of this category. Anticonvulsants, mood stabilizers, tricyclic, and tetracyclic antidepressants increase mildly to moderately the risk. Selective serotonin reuptake inhibitors, serotonin–norepinephrine reuptake inhibitors, serotonin modulators and stimulators, serotonin antagonists and reuptake inhibitors, norepinephrine reuptake inhibitors, and monoamine oxidase inhibitors have not been associated with increased risk for type 2 diabetes. First and second generation antipsychotics have been associated with increased risk, while anticonvulsants, mood stabilizers, and antidepressants increase modestly the risk for type 2 diabetes. Healthcare professional should be aware of the potential diabetogenic effect of antipsychotic medications and prompt screening is required for the early diagnosis of type 2 diabetes in this population.