Today, type 2 diabetes mellitus (T2DM) and skeletal muscle atrophy (SMA) have become increasingly common occurrences. Whether the onset of T2DM increases the risk of SMA or vice versa has long been under investigation. Both conditions are associated with negative changes in skeletal muscle health, which can, in turn, lead to impaired physical function, a lowered quality of life, and an increased risk of mortality. Poor nutrition can exacerbate both T2DM and SMA. T2DM and SMA are linked by a vicious cycle of events that reinforce and worsen each other. Muscle insulin resistance appears to be the pathophysiological link between T2DM and SMA. To explore this association, our review (i) compiles evidence on the clinical association between T2DM and SMA, (ii) reviews mechanisms underlying biochemical changes in the muscles of people with or at risk of T2DM and SMA, and (iii) examines how nutritional therapy and increased physical activity as muscle-targeted treatments benefit this population. Based on the evidence, we conclude that effective treatment of patients with T2DM-SMA depends on the restoration and maintenance of muscle mass. We thus propose that regular intake of key functional nutrients, along with guidance for physical activity, can help maintain euglycemia and improve muscle status in all patients with T2DM and SMA.