Diabetes changes the host microbiota, a condition known as dysbiosis. Dysbiosis is an important factor for the pathogenesis of diabetes and colorectal cancer (CRC). We aimed at identifying the microbial signature associated with diabetes and CRC; and identifying the signaling mechanism altered by dysbiosis and leading to CRC progression in diabetes. MKR mice that can spontaneously develop type 2 diabetes were used. For CRC induction, another subset of mice was treated with azoxymethane and dextran sulfate sodium. To identify the role of microbiota, microbiota-depleted mice were inoculated with fecal microbial transplant from diabetic and CRC mice. Further, a mouse group was treated with probiotics. At the end of the treatment, 16S rRNA sequencing was performed to identify microbiota in the fecal samples. Blood was collected, and colons were harvested for molecular, anatomical, and histological analysis. Our results show that diabetes is associated with a microbial signature characterized by reduction of butyrate-forming bacteria. This dysbiosis is associated with gastrointestinal complications reflected by a reduction in colon lengths. These changes are reversed upon treatment with probiotics, which rectified the observed dysbiosis. Inoculation of control mice with diabetic or cancer microbiota resulted in the development of increased number of polyps. Our data also show that inflammatory cytokines (mainly interleukin (IL)-1β) and NADPH oxidase (NOX)4 are over-expressed in the colon tissues of diabetic mice. Collectively our data suggest that diabetes is associated with dysbiosis characterized by lower abundance of butyrate-forming bacteria leading to over-expression of IL-1β and NOX4 leading to gastrointestinal complications and CRC.