Background: This study addresses the prevalence and outcomes of sarcopenic diabetes among older adults hospitalized for hip fractures, highlighting its association with nutritional status, frailty, in-hospital outcomes, and mortality. With the global incidence of hip fractures anticipated to rise significantly, understanding these associations is crucial, especially considering the higher prevalence of sarcopenia in diabetic patients, which exacerbates outcomes. Methods: An observational, unicentric case–control study nested within a real-world data cohort was conducted. It included 2631 older adults (aged ≥ 70 years) hospitalized for hip fractures at the Hospital Universitario de la Ribera, Spain, from 2014 to 2021. Diabetic patients were classified as cases, and non-diabetic patients served as controls. The study examined demographic variables, comorbidities, nutritional status, geriatric syndromes, and mortality, using the SARC-F questionnaire for sarcopenia screening. Results: The study found that cases (diabetic patients) presented with higher comorbidities, longer hospital stays, and a higher prevalence of sarcopenia, significantly impacting in-hospital and long-term mortality rates. The prevalence of possible sarcopenia was notably higher at 61.5% among diabetic patients. Sarcopenia was strongly correlated with worse functional outcomes and higher mortality. Conclusions: Sarcopenic diabetes significantly increases the risk of adverse outcomes and mortality in older adults with hip fractures. The findings underscore the importance of routine screening for diabetes and sarcopenia in this patient population to mitigate risks and improve rehabilitation outcomes.