Abstract Background Clinical inertia is a failure to intensify treatment according to evidence‐based guidelines, and can have both short‐ and long‐term adverse effects for type 2 diabetes (T2D). The aim of the present study was to demonstrate the effects of clinical inertia on glycemic control and diabetes‐related complications. Methods A retrospective cohort study was conducted at a university‐based hospital in Thailand. Medical records were evaluated retrospectively from January 2010 to December 2014. Patients were classified into two groups: clinical inertia and non‐inertia. Clinical inertia was defined as failure to initiate insulin within 3 months in patients with HbA1c ≥9 % who were already taking two oral antidiabetic agents. Results From 1206 records, 98 patients with mean HbA1c of 10.3 % were identified and enrolled in the study. The median follow‐up time of these patients was 29.5 months and 68.4 % were classified into the clinical inertia group. The mean (± SD) HbA1c decrement in the clinical inertia and non‐inertia groups was 0.82 ± 1.50 % and 3.02 ± 1.80 %, respectively, at 6 months ( P < 0.001) and 1.46 ± 1.85 % and 3.04 ± 1.76 %, respectively, at the end of study ( P < 0.001). Clinical inertia was associated with a significantly shorter median time to progression of diabetic retinopathy (DR); log rank test, P = 0.02 and a higher incidence of DR progression (10 vs 2.2 cases per 1000 person‐months; P = 0.003). The adjusted incidence rate ratio for DR progression in the clinical inertia group was 4.92 (95 % confidence interval 1.11–21.77; P = 0.036). Being treated by general practitioners was the strongest risk factor associated with clinical inertia. Conclusions Clinical inertia can cause persistently poor glycemic control and speed up the progression of DR in T2D.