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Background: Examining variation in diabetes care across regions/organizations provides insight into underlying factors related to quality of care. The aims of this study were to assess quality of diabetes care and its variation among Aboriginal community health centres in Australia, and to estimate partitioning of variation attributable to health centre and individual patient characteristics. Methods: During 2005–2009, clinical medical audits were conducted in 62 Aboriginal community health centres from four states/territories. Main outcome measures include adherence to guidelines‐scheduled processes of diabetes care, treatment and medication adjustment, and control of HbA1c, blood pressure, total cholesterol and albumin/creatinine ratio (ACR). Results: Wide variation was observed across different categories of diabetes care measures and across centres: (1) overall adherence to delivery of services averaged 57% (range 22–83% across centres); (2) medication adjustment rates after elevated HbA1c: 26% (0–72%); and (3) proportions of patients with HbA < 7% : 27% (0–55%); with blood pressure < 130/80 mmHg: 36%(0–59%). Health centre level characteristics accounted for 36% of the total variation in adherence to process measures, and 3–11% of the total variation in patient intermediate outcomes; the remaining, substantial amount of variation in each measure was attributable to patient level characteristics. Conclusions: Deficiencies in a range of quality of care measures provide multiple opportunities for improvement. The majority of variation in quality of diabetes care appears to be attributable to patient level characteristics. Further understanding of factors affecting variation in the care of individuals should assist clinicians, managers and policy makers to develop strategies to improve quality of diabetes care in Aboriginal communities. Refereed/Peer-reviewed