A substantial body of literature has provided evidence that type 2 diabetes mellitus (T2DM) and colorectal neoplasia share several common factors. Both diseases are among the leading causes of death worldwide and have an increasing incidence. In addition to usual risk factors such as sedentary lifestyle, obesity, and family history, common pathophysiological mechanisms involved in the development of these diseases have been identified. These include changes in glucose metabolism associated with adipose tissue dysfunction including insulin resistance resulting to hyperinsulinemia and chronic hyperglycemia. In addition to altered glucose metabolism, abdominal obesity has been associated with accented carcinogenesis with chronic subclinical inflammation. An increasing number of studies have recently described the role of the gut microbiota in metabolic diseases including T2DM and the development of colorectal cancer (CRC). Due to the interconnectedness of different pathophysiological processes, it is not entirely clear which factor is crucial in the development of carcinogenesis in patients with T2DM. The aim of this work is to review the current knowledge on the pathophysiological mechanisms of colorectal neoplasia development in individuals with T2DM. Here, we review the potential pathophysiological processes involved in the onset and progression of colorectal neoplasia in patients with T2DM. Uncovering common pathophysiological characteristics is essential for understanding the nature of these diseases and may lead to effective treatment and prevention.