Background Type 2 diabetes (T2D) is increasing day by day and creating a huge financial and social burden on the Indian population. Insulin resistance results in hyperglycemia, a condition that eventually causes prediabetes and Type 2 diabetes. The etiopathogenesis of T2D is still not clearly defined. Wnt signaling pathway is involved in pancreas development, islet function, insulin production, and secretion. Recent studies show that sclerostin, a Wnt signaling inhibitor, is associated with diabetes. The sclerostin level is altered as a function of race and ethnicity. However, no study has been conducted to observe the sclerostin level in prediabetic and diabetic individuals in the Indian population. Objectives The main objectives of the study are: to determine whether sclerostin is associated with glycemic parameters, serum insulin levels, insulin resistance/ sensitivity, beta-cell function, and adipose tissue insulin resistance (Adipo-IR). Methods This observational study was carried out at a tertiary care hospital, in Rishikesh, Uttarakhand, India. Individuals with T2D and prediabetes and healthy references were included in this study. Sclerostin and free fatty acids (FFA) were measured with the enzyme-linked immunosorbent assay (ELISA), and blood sugar, insulin, and glycated haemoglobin (HbA1c) were measured by the hexokinase, chemiluminescent, and chromatography methods, respectively. Messenger RNA (mRNA) was quantified by real-time polymerase chain reaction (PCR) using the SYBR Green protocol. Adipo-IR, homeostasis model assessment-estimated insulin resistance (HOMA-IR), homeostasis model assessment of β-cell function (HOMA-B), quantitative insulin sensitivity check index (QUICKI), and single point insulin sensitivity estimator (SPISE) indices were calculated. Results A total of 171 study participants were enrolled in type 2 diabetes, prediabetes, and controls groups, having 57 each in the group. There was a gradual increase in sclerostin levels from healthy [242.12(158.44)] to prediabetes [256.06(299.65)] and diabetes [465.76 (735.71)] with a significant (<0.001) difference from healthy reference. Sclerostin showed a significant positive correlation with fasting blood sugar (r=0.200; p=0.009), HbA1c (r=0.394; p<0.001) and free fatty acids (r=0.205; p=0.007) in total study participants. The SPISE index showed a significant positive correlation (r=0.269, p=0.043) in the prediabetic group. SOST, GLUT4, and insulin receptor (IR) mRNA expression all corroborate with the glycemic status. Conclusion Significantly higher expression of sclerostin (both protein and gene) in newly diagnosed T2D and prediabetes male patients, as well as significant association with SPISE index, suggest that sclerostin might be an indicator of pathophysiology related to insulin resistance, which is a characteristic feature of diabetes mellitus. However, the identification of causal relationships would warrant a large-scale prospective cohort study.