Diabetic retinopathy (DR) is a leading cause of vision-loss globally among type 2 diabetes (T2DM) patients. Information on the economic burden of DR in Singapore is limited. We aim to identify the total annual direct medical costs of DR at different stages, and to examine factors influencing the costs. Four hundreds and seventy T2DM patients who attended the Diabetes Centre in a secondary hospital in Singapore in 2011-2014 were included. Digital color fundus photographs were assessed for DR in a masked fashion. Retinopathy severity was further categorized into non-proliferative DR (NPDR), including mild, moderate and severe NPDR, and proliferative DR (PDR). Medical costs were assessed using hospital administrative data. DR was diagnosed in 172 (39.5%) patients, including 51 mild, 62 moderate and 18 severe NPDR, and 41 PDR. The median cost in DR [2012.0 (1111.2-4192.3)] was significantly higher than that in non-DR patients [1158.1 (724.1-1838.9)] (p<0.001). The corresponding costs for mild, moderate, severe NPDR and PDR were [1167.1 (895.4-2012.0)], [2212.0 (1215.5-3825.5)], [2717.5 (1444.0-6310.7)], and [3594.8.1 (1978.4-8427.7)], respectively. After adjustment, the corresponding cost ratios for mild, moderate, severe NPDR, and PDR relative to non-DR were 1.1 (p = 0.827), 1.8 (p = 0.003), 2.0 (p = 0.031) and 2.3 (p<0.001), respectively. The other factors affecting the total cost include smoking (ratio = 1.7, p = 0.019), neuropathy (ratio = 1.9, p = 0.001) and chronic kidney disease (CKD) (ratio = 1.4, p = 0.019). The presence and severity of DR was associated with increased direct medical costs in T2DM. Our results suggest that preventing progression of DR may reduce the economic burden of DR.