This study examined the association between neighbourhood socioeconomic disadvantage and serious mental illness (SMI)–type 2 diabetes (T2D) comorbidity in an Australian population using routinely collected clinical data. We hypothesised that neighbourhood socioeconomic disadvantage is positively associated with T2D comorbidity in SMI. The analysis considered 3816 individuals with an SMI living in the Illawarra and Shoalhaven regions of NSW, Australia, between 2010 and 2017. Multilevel logistic regression models accounting for suburb (neighbourhood) level clustering were used to assess the association between neighbourhood disadvantage and SMI -T2D comorbidity. Models were adjusted for age, sex, and country of birth. Compared with the most advantaged neighbourhoods, residents in the most disadvantaged neighbourhoods had 3.2 times greater odds of having SMI–T2D comorbidity even after controlling for confounding factors (OR 3.20, 95% CI 1.42–7.20). The analysis also revealed significant geographic variation in the distribution of SMI -T2D comorbidity in our sample (Median Odds Ratio = 1.35) Neighbourhood socioeconomic disadvantage accounted for approximately 17.3% of this geographic variation. These findings indicate a potentially important role for geographically targeted initiatives designed to enhance prevention and management of SMI–T2D comorbidity in disadvantaged communities.