Background: Most clinical guidelines recommend measuring postoperative carcinoembryonic antigen (CEA) levels to predict the prognosis of colorectal cancer. However, type II diabetes can increase serum CEA levels which may bias the prognosis. Thus, we aimed to evaluate the impact of type II diabetes on CEA prognostic accuracy in colorectal cancer. Methods: This retrospective cohort study included 407 patients who underwent curative resection for stage I to III colorectal adenocarcinoma in a single institution between January 2010 and June 2018. The patients were categorized into two groups according to their postoperative serum CEA levels: group A <5.0 ng/mL (n = 341) and group B ≥5.0 ng/mL (n = 66). Patients were also categorized into two subgroups according to their history of type II diabetes: patients with type II diabetes mellitus (n = 112) and patients without type II diabetes (n = 295). Results: The 3-year disease-free survival (DFS) rates were significantly higher in patients with normal postoperative CEA (group A, 83.8%) than in patients with elevated preoperative and postoperative CEA (group B, 63.6%) (p < 0.001). However, although patients with type II diabetes mellitus had higher postoperative CEA levels than those without type II diabetes mellitus (3.1 vs 2.5 ng/mL, p < 0.001), group B patients with type II diabetes mellitus had a significantly higher 3-year DFS rate than those without type II diabetes mellitus (80.0% vs 55.6%, p = 0.003). Conclusion: Type II diabetes was associated with higher preoperative and postoperative CEA levels in patients with colorectal cancer. Consequently, elevated postoperative CEA level was not associated with shorter 3-year DFS in patients with type II diabetes, as opposed to patients without type II diabetes. Therefore, colorectal cancer patients with type II diabetes may need alternative tumor markers to be used during the surveillance strategy after curative surgery.