INTRODUCTION: Using data from a a primary care pay-for-performance scheme targeting quality indicators, the objective of this study was to assess if people living with type 2 diabetes mellitus (T2DM) and severe mental illnesses (SMI) experienced poorer glycemic management compared with people living with T2DM alone, and if observed differences varied by race/ethnicity, deprivation, gender, or exclusion from the scheme. RESEARCH DESIGN AND METHODS: Primary care data from a cohort of 56 770 people with T2DM, including 2272 people with T2DM and SMI, from London (UK), diagnosed between January 17, 2008 and January 16, 2018, were used. Adjusted mean glycated hemoglobin (HbA1c) and HbA1c differences were assessed using multilevel regression models. RESULTS: Compared with people with T2DM only, people with T2DM/SMI were more likely to be of an ethnic minority background, excluded from the pay-for-performance scheme and residing in more deprived areas. Across the sample, mean HbA1c was lower in those with T2DM and SMI (mean HbA1c: 58 mmol/mol; 95% CI 57 to 59), compared with people with T2DM only (mean HbA1c: 59 mmol/mol; 95% CI 59 to 60). However, HbA1c levels were greater in Bangladeshi, Indian, Pakistani, and Chinese people compared with the White British reference in the T2DM/SMI group. People with T2DM/SMI who had been excluded from the pay-for-performance scheme, had HbA1c levels which were +7 mmol/mol (95% CI 2 to 11) greater than those with T2DM/SMI not excluded. Irrespective of SMI status, increasing deprivation and male gender were associated with increased HbA1c levels. CONCLUSIONS: Despite a pay-for-performance scheme to improve quality standards, inequalities in glycemic management in people with T2DM and SMI persist in those excluded from the scheme and by gender, ethnicity, and area-level deprivation.