The objective of this open, longitudinal, controlled study was to assess the effect of transdermal estradiol alone or combined with cyclical dydrogesterone on the markers of cardiovascular disease (CVD) risk in postmenopausal women with type 2 diabetes. The control group consisted of postmenopausal diabetic women who declined menopausal hormone replacement therapy (HRT). Twenty-eight postmenopausal women (19 on HRT and 9 controls) with type 2 diabetes were followed up for 12 months. From the active treatment group 14 women with a uterus in situ had 80 microg/24 hr transdermal estradiol (Fematrix 80; Solvay Healthcare Ltd, Southampton, UK) and oral dydrogesterone 10 mg daily for the first 12 days of the calendar month, whereas 5 women with previous hysterectomy had 80 microg/24 hr transdermal estradiol (Fematrix 80) alone. CVD risk markers were measured before and at regular intervals after starting HRT. The main outcome measures were weight, systolic and diastolic blood pressure, fasting plasma glucose, glycated hemoglobin (HbA1c), glucose/insulin ratio, total cholesterol, high-density lipoprotein (HDL) cholesterol, low-density lipoprotein (LDL) cholesterol, triglycerides, lipoprotein (a), high-sensitivity C-reactive protein (hs-CRP), fibrinogen, and endothelin-1. Transdermal estradiol with or without dydrogesterone in women with type 2 diabetes did not adversely affect any of the measured markers of cardiovascular risk. There was a significant decrease in HbA1c, total cholesterol, and LDL cholesterol at 6 months in women receiving HRT. Some of the cardiovascular disease risk markers may improve in postmenopausal women with type 2 diabetes with transdermal estradiol. This effect may have important clinical implications and it deserves further investigation in appropriately designed trials.