There is little data on ethnic differences in incidence of DR and sight threatening DR (STDR) in the United Kingdom. We aimed to determine ethnic differences in the development of DR and STDR and to identify risk factors of DR and STDR in people with incident or prevalent type II diabetes (T2DM). We used electronic primary care medical records of people registered with 134 general practices in East London during the period from January 2007–January 2017. There were 58,216 people with T2DM eligible to be included in the study. Among people with newly diagnosed T2DM, Indian, Pakistani and African ethnic groups showed an increased risk of DR with Africans having highest risk of STDR compared to White ethnic groups (HR: 1.36 95% CI 1.02–1.83). Among those with prevalent T2DM, Indian, Pakistani, Bangladeshi and Caribbean ethnic groups showed increased risk of DR and STDR with Indian having the highest risk of any DR (HR: 1.24 95% CI 1.16–1.32) and STDR (HR: 1.38 95% CI 1.17–1.63) compared with Whites after adjusting for all covariates considered. It is important to optimise prevention, screening and treatment options in these ethnic minority groups to avoid health inequalities in diabetes eye care.