New onset diabetes is a major complication after kidney transplantation. However, the incidence, risk factors and clinical relevance of post-transplant diabetes mellitus (PTDM) vary among reports from single-center observational studies and clinical trials. Using data from the United Renal Data System we identified 11 659 Medicare beneficiaries who received their first kidney transplant in 1996–2000. The cumulative incidence of PTDM was 9.1% (95% confidence interval = 8.6–9.7%), 16.0% (15.3–16.7%), and 24.0% (23.1–24.9%) at 3, 12, and 36 months post-transplant, respectively. Using Cox's proportional hazards analysis, risk factors for PTDM included age, African American race (relative risk = 1.68, range: 1.52–1.85, p < 0.0001), Hispanic ethnicity (1.35, range: 1.19–1.54, p < 0.0001), male donor (1.12, range: 1.03–1.21, p = 0.0090), increasing HLA mismatches, hepatitis C infection (1.33, range: 1.15–1.55, p < 0.0001), body mass index ≥30 kg/m2 (1.73, range: 1.57–1.90, p < 0.0001), and the use of tacrolimus as the initial maintenance immunosuppressive medication (1.53, range: 1.29–1.81, p < 0.0001). Factors that reduced the risk for PTDM included the use of mycophenolate mofetil, azathioprine, younger recipient age, glomerulonephritis as a cause of kidney failure, and a college education. As a time-dependent covariate in Cox analyses that also included multiple other risk factors, PTDM was associated with increased graft failure (1.63, 1.46–1.84, p < 0.0001), death-censored graft failure (1.46, 1.25–1.70, p < 0.0001), and mortality (1.87, 1.60–2.18, p < 0.0001). We conclude that high incidences of PTDM are associated with the type of initial maintenance immunosuppression, race, ethnicity, obesity and hepatitis C infection. It is a strong, independent predictor of graft failure and mortality. Efforts should be made to minimize the risk of this important complication.