The goal of this magnetic resonance (MR) imaging study was to quantify vertebral bone marrow fat content and composition in diabetic and nondiabetic postmenopausal women with fragility fractures and to compare them with nonfracture controls with and without type 2 diabetes mellitus. Sixty-nine postmenopausal women (mean age 63 ± 5 years) were recruited. Thirty-six patients (47.8%) had spinal and/or peripheral fragility fractures. Seventeen fracture patients were diabetic. Thirty-three women (52.2%) were nonfracture controls. Sixteen women were diabetic nonfracture controls. To quantify vertebral bone marrow fat content and composition, patients underwent MR spectroscopy (MRS) of the lumbar spine at 3 Tesla. Bone mineral density (BMD) was determined by dual-energy X-ray absorptiometry (DXA) of the hip and lumbar spine (LS) and quantitative computed tomography (QCT) of the LS. To evaluate associations of vertebral marrow fat content and composition with spinal and/or peripheral fragility fractures and diabetes, we used linear regression models adjusted for age, race, and spine volumetric bone mineral density (vBMD) by QCT. At the LS, nondiabetic and diabetic fracture patients had lower vBMD than controls and diabetics without fractures (p = 0.018; p = 0.005). However, areal bone mineral density (aBMD) by DXA did not differ between fracture and nonfracture patients. After adjustment for age, race, and spinal vBMD, the prevalence of fragility fractures was associated with -1.7% lower unsaturation levels (confidence interval [CI] -2.8% to -0.5%, p = 0.005) and +2.9% higher saturation levels (CI 0.5% to 5.3%, p = 0.017). Diabetes was associated with -1.3% (CI -2.3% to -0.2%, p = 0.018) lower unsaturation and +3.3% (CI 1.1% to 5.4%, p = 0.004) higher saturation levels. Diabetics with fractures had the lowest marrow unsaturation and highest saturation. There were no associations of marrow fat content with diabetes or fracture. Our results suggest that altered bone marrow fat composition is linked with fragility fractures and diabetes. MRS of spinal bone marrow fat may therefore serve as a novel tool for BMD-independent fracture risk assessment.