Increased lipid peroxidation contributes to diabetic complications and redox-active iron is known to play an important role in catalyzing peroxidation reactions. We aimed to investigate if diabetes affects the capacity of plasma to protect against iron-driven lipid peroxidation and to identify underlying factors. Glycemic control, serum iron, proteins involved in iron homeostasis, plasma iron-binding antioxidant capacity in a liposomal model, and non-transferrin-bound iron were measured in 40 type 1 and 67 type 2 diabetic patients compared to 100 nondiabetic healthy control subjects. Iron-binding antioxidant capacity was significantly lower in the plasma of diabetic subjects (83 ± 6 and 84 ± 5% in type 1 and type 2 diabetes versus 88 ± 6% in control subjects, p < 0.0005). The contribution of transferrin, ceruloplasmin, and albumin concentrations to the iron-binding antioxidant capacity was lost in diabetes (explaining only 4.2 and 6.3% of the variance in type 1 and type 2 diabetes versus 13.9% in control subjects). This observation could not be explained by differences in Tf glycation, lipid, or inflammatory status and was not associated with higher non-transferrin-bound iron levels. Iron-binding antioxidant capacity is decreased in diabetes mellitus.