Some previous studies have suggested that consuming dairy products, particularly the low-fat variety, lowers the incidence of type 2 diabetes. However, no study to our knowledge has focused on an ethnically diverse group of postmenopausal women, a population with a high risk of this disease. We conducted a prospective cohort study of 82,076 postmenopausal women enrolled in the Women's Health Initiative Observational Study who did not report diabetes at enrollment. Total, low-fat, and high-fat dairy product and yogurt intakes were estimated from FFQ at baseline and 3 y of follow-up. Treated diabetes incidence was ascertained from annual follow-up questionnaires. During 8 y of follow-up, 3946 cases of incident treated diabetes were reported (annual incidence, 0.73%; cumulative incidence, 4.8%). After multivariable adjustment, low-fat dairy product consumption was inversely associated with the risk of type 2 diabetes. RR was roughly 0.5-0.6 in the upper quintiles compared with the lowest quintile (median servings/d, 2.8 in the 5th quintile and 1.5 in the 4th quintile vs. 0.05 in the first quintile; P-trend, 0.001). The inverse relationship was more pronounced in women with a higher BMI. High yogurt consumption was associated with a significant decrease in diabetes risk, whereas there was no relationship between high-fat dairy product consumption and diabetes risk. A diet high in low-fat dairy products is associated with lower diabetes risk in postmenopausal women, particularly those who are obese. © 2011 American Society for Nutrition.