Patients with diabetes have an increased risk for development of cardiomyopathy, even in the absence of well known risk factors like coronary artery disease and hypertension. Diabetic cardiomyopathy was first recognized approximately four decades ago. To date, several pathophysiological mechanisms thought to be responsible for this new entity have also been recognized. In the presence of hyperglycemia, non-enzymatic glycosylation of several proteins, reactive oxygen species formation, and fibrosis lead to impairment of cardiac contractile functions. Impaired calcium handling, increased fatty acid oxidation, and increased neurohormonal activation also contribute to this process. Demonstration of left ventricular hypertrophy, early diastolic and late systolic dysfunction by sensitive techniques, help us to diagnose diabetic cardiomyopathy. Traditional treatment of heart failure is beneficial in diabetic cardiomyopathy, but specific strategies for prevention or treatment of cardiac dysfunction in diabetic patients has not been clarified yet. In this review we will discuss clinical and experimental studies focused on pathophysiology of diabetic cardiomyopathy, and summarize diagnostic and therapeutic approaches developed towards this entity.