Background: Functional decline is an important consideration in the surgical treatment of renal cell carcinoma (RCC). While radical nephrectomy (RN) may be associated with increased risk of functional decline compared to partial nephrectomy (PN), the modifying effect of DM, an independent risk factor of chronic kidney disease (CKD), is not completely understood. We investigated the relationship between DM and decline in kidney function following surgery for RCC, and impact on overall survival (OS) in patients with RCC. Methods: A multicenter dataset of RCC patients undergoing PN and RN was utilized. The cohort was divided based on DM status [DM vs No DM (NDM)]. Multivariable analysis (MVA) elucidated potential variables associated with decline in kidney function [de novo estimated glomerular filtration rate (eGFR) < 45 ml/min/1.73m² and de novo eGFR < 30 ml/min/1.73m²] and worse all-cause mortality (ACM). Kaplan-Meier analysis (KMA) was used to investigate OS rates in DM and NDM patients undergoing RN and PN. Results: 2928 patients were analyzed (DM = 406, NDM = 2522). On MVA, independent risk factors associated with eGFR < 45 included age (OR = 1.07, p < 0.001), DM (OR = 1.88, p < 0.001), tumor size (OR = 1.03, p = 0.032), and RN (OR = 1.54, p < 0.001). Variables associated with eGFR < 30 included age (OR = 1.05, p < 0.001), African American race (OR = 2.18, p < 0.001), and DM (OR = 2.09, p < 0.001). MVA for ACM revealed age (OR = 1.02, p = 0.002), HTN (OR = 2.47, p < 0.001), tumor size (OR = 1.12, p < 0.001), tumor grade (OR = 1.87, p < 0.001), RN (OR = 1.55, p = 0.011), eGFR < 45 (OR = 1.40, p = 0.03), and eGFR < 30 (OR = 1.87, p = 0.026) to be independently associated. On KMA, 5-year OS stratified by DM status showed that DM is associated with worse OS for RN patients (p = 0.047), but not for PN patients (p = 0.944). Conclusions: Presence of DM is an independent risk factor for renal functional decline and development of worsening CKD is a risk factor for worsening ACM. Furthermore, decreased survival in DM patients was associated with RN recipients but not with PN recipients. Presence of DM may be considered a strong indicator for nephron preservation management strategies when safe and feasible in RCC patients.