Muscle atrophy is caused by an imbalance in contractile protein synthesis and degradation which can be triggered by various conditions including Type 2 Diabetes Mellitus (T2DM). Reduced muscle quality in patients with T2DM adversely affects muscle function, the capacity to perform activities of daily living, quality of life and ultimately may increase the risk of premature mortality. Systemic inflammation initiated by obesity and prolonged overnutrition not only contributes to insulin resistance typical of T2DM, but also promotes muscle atrophy via decreased muscle protein synthesis and increased ubiquitin-proteasome, lysosomal-proteasome and caspase 3- mediated protein degradation. Emerging evidence suggests that the inflammation-sensitive Nuclear Factor κ B (NF-κB) and Signal Transducer and Activator of Transcription 3 (STAT3) pathways may contribute to muscle atrophy in T2DM. In contrast, exercise appears to be an effective tool in promoting muscle hypertrophy, in part due to its effect on systemic and local (skeletal muscle) inflammation. The current review discusses the role inflammation plays in muscle atrophy in T2DM and the role of exercise training in minimising the effect of inflammatory markers on skeletal muscle. We also report original data from a cohort of obese patients with T2DM compared to age-matched controls and demonstrate that patients with T2DM have 60% higher skeletal muscle expression of the atrophy transcription factor FoxO1. This review concludes that inflammatory pathways in muscle, in particular, NF-κB, potentially contribute to T2DM-mediated muscle atrophy. Further in-vivo and longitudinal human research is required to better understand the role of inflammation in T2DM-mediated atrophy and the anti-inflammatory effect of exercise training under these conditions.