The Australian Terrier breed is the breed at highest risk for naturally-occurring diabetes mellitus in the United States, where it is 32 times more likely to develop diabetes compared to mixed breed dogs. However, the heritability and mode of inheritance of spontaneous diabetes in Australian Terriers has not been reported. The aim of this study was therefore to investigate the heritability and mode of inheritance of diabetes in Australian Terriers. A cohort of related Australian Terriers including 383 Australian Terriers without diabetes, 86 Australian Terriers with spontaneous diabetes, and 14 Australian Terriers with an unknown phenotype, was analyzed. A logistic regression model including the effects of sex was formulated to evaluate the heritability of diabetes. The inheritance pattern of spontaneous diabetes in Australian Terriers was investigated by use of complex segregation analysis. Six possible inheritance models were studied, and the Akaike Information Criterion was used to determine the best model for diabetes inheritance in Australian Terriers, among the models deemed biologically feasible. Heritability of diabetes in Australian Terriers was estimated at 0.18 (95% confidence interval 0.0-0.67). There was no significant difference in the effect of males and females on disease outcome. Complex segregation analysis suggested that the mode of diabetes inheritance in Australian Terriers is polygenic, with no evidence for a large effect single gene influencing diabetes. It is concluded that in the population of Australian Terriers bred in the United States, a relatively small degree of genetic variation contributes to spontaneous diabetes. A genetic uniformity for diabetes-susceptible genes within the population of Australian Terriers bred in the Unites States could increase the risk of diabetes in this cohort. These findings hold promise for future genetic studies of canine diabetes focused on this particular breed.