Hyperlipidemia is common in diabetic patients. While our understanding of lipid and lipoprotein metabolism in diabetes is incomplete, a pathophysiologic approach to this problem is presented. It is based on the recognition that diabetes is metabolically heterogeneous. Thus the roles of insulin deficiency, insulin resistance, obesity, and genetic factors are discussed in relation to their effects on lipoprotein production and catabolism. The most important defect in insulin-deficient subjects appears to be a deficiency of lipoprotein lipase, which is responsible for the removal of the triglyceride-rich lipoproteins. In non-insulin-dependent subjects there is evidence for a removal defect as well as, in some patients, for overproduction of VLDL-triglyceride. Cholesterol levels may be elevated and it is important to distinguish between VLDL, LDL, and HDL as the causes for these increases. HDL-cholesterol levels may be increased in insulin-dependent subjects, whereas they may be decreased in obese non-insulin-dependent patients. Mild elevations of LDL-cholesterol may occur in inadequately controlled type I and II diabetic patients, while elevated VLDL may raise the serum cholesterol in addition to the triglyceride levels. The rationale for therapy is based on the complications of severe hypertriglyceridemia and the risk of occlusive atherosclerosis. Management is directed at improving glycemic control, altering dietary composition, and reducing calories in obese patients. Improved glycemic control is effective in reducing triglyceride and cholesterol levels in insulin-deficient subjects. The response of the non-insulin-dependent diabetic patient to improved control may be complicated by associated obesity or familial hyperlipidemia. The advantages and disadvantages of fat versus carbohydrate restriction in the diet are discussed. Finally, resistant hyperlipidemia may require drug therapy. Diabetic hyperlipidemia should be viewed as resulting from an interaction between the diabetic syndrome, the genetic background of the patient, and the environment.