Obesity and diabetes are major health problems in the United States. The primary aim of this study is to examine the association between obesity and diabetes and to estimate the cost of diabetes linked to obesity in the Appalachian region. A system of simultaneous equations approach, and a logit estimation are employed for the analyses. Behavioral Risk Factor Surveillance System (BRFSS) surveys for 2001 and 2009 are the main sources of data. Both county-level and individual-level data are used for the analyses. The simultaneous approach at county-level based on the changes of income, employment, obesity, and diabetes reveals that obesity increases diabetes, but diabetes does not have an effect on obesity. The counties with high initial levels of obesity had less obesity growth but more diabetes growth. Increasing income impacts negatively on diabetes growth. Logit analysis indicates that obesity significantly increases the risk of diabetes of adults’ in Appalachia. Besides, being employed, higher income, as well as engaging in exercise reduce the prevalence of diabetes, while age increases diabetes. The economic cost of obesity-related diabetes is $1.9 billion, and can be reduced through mitigating obesity.