Aim: To investigate the utility of calcaneal quantitative ultrasound compared with bone densitometry (DXA) in predicting incident low‐trauma fracture in type 2 diabetes. Methods: This retrospective cohort study included a subset of participants in the Dubbo Osteoporosis Epidemiology Study who had concurrent calcaneal quantitative ultrasound and DXA measurement, comprising 809 people without type 2 diabetes and 96 with type 2 diabetes. Fracture data had been collected prospectively. Cox proportional hazard models and receiver operating curves (ROC) were used to compare calcaneal quantitative ultrasound and DXA parameters as predictors for any low‐trauma fracture. Results: The median age of participants was 71 years (IQR 68–76, 50% men) for those without type 2 diabetes and 70 years (IQR 68–76, 55% men) for those with type 2 diabetes. There was no difference in low‐trauma fracture incidence between groups when stratified by sex. In those without type 2 diabetes, the hazard ratio for fracture per 1 sd decrease in broadband ultrasound attenuation and femoral neck bone mineral density (BMD) was 1.47 [95% confidence interval (CI) 1.26–1.71] and 1.39 (95% CI 1.17–1.64), respectively. The corresponding figures in type 2 diabetes were 1.81 (95% CI 1.03–3.19) for broadband ultrasound attenuation and 2.55 (95% CI 1.28–5.08) for femoral neck BMD. Conclusion: Broadband ultrasound attenuation is comparable with femoral neck BMD as a predictor for low trauma incident fracture in type 2 diabetes. Calcaneal quantitative ultrasound offers several advantages over DXA and should be considered in further studies of bone health screening or in clinical practice where DXA is unavailable. What's new?: Type 2 diabetes is generally associated with greater fracture risk and paradoxically higher bone mineral density.Calcaneal quantitative ultrasound has practical advantages over bone densitometry (DXA) and incorporates assessment of bone quality.The association of type 2 diabetes with greater fracture risk may not be generalizable to all populations.Calcaneal quantitative ultrasound parameter broadband ultrasound attenuation independently predicts low‐trauma incident fracture in type 2 diabetes.Calcaneal quantitative ultrasound could be used to assess fracture risk in type 2 diabetes when DXA is not available.Further studies should investigate the benefit of calcaneal quantitative ultrasound in screening bone health to direct early intervention in type 2 diabetes. [ABSTRACT FROM AUTHOR]