Background: Older adults with diabetes mellitus frequently require multiple medications because of multimorbidity, increasing the complexity of pharmacotherapy and the risk of drug-related problems (DRPs) and potentially inappropriate medications (PIMs). Systematic identification of inappropriate prescribing is therefore important for improving medication safety in this vulnerable population. Objectives: To identify PIMs among elderly patients with diabetes mellitus using the 2019 American Geriatrics Society (AGS) Beers Criteria and to characterize the associated DRPs and their underlying causes using the Pharmaceutical Care Network Europe (PCNE) Classification V9.1. Methodology: A prospective observational study was conducted over 6 months in the General Medicine Department of HKES’s Basaveshwar Teaching and General Hospital, Kalaburagi. Patients aged >65 years with diabetes mellitus who were prescribed at least two medications and fulfilled the predefined eligibility criteria were enrolled. Demographic characteristics, diagnoses, comorbidities, medication profiles and relevant clinical information were recorded using a structured data collection form. PIMs were identified using the 2019 AGS Beers Criteria and the identified PIMs were subsequently classified according to the PCNE V9.1 framework. Results: A total of 120 elderly patients were evaluated. Most patients were aged 65–75 years (101; 84.17%) and were male (72; 60.0%). Diabetes with hypertension was the predominant comorbidity (73; 60.8%). Major polypharmacy (>5 medications) was present in 114 patients (95.0%), with a mean of 11 medications prescribed per patient. A total of 218 PIMs were identified. The largest Beers category was drug–disease/drug–syndrome interactions (56; 25.7%), followed by medications to be avoided (50; 22.9%), renal impairment-related criteria (42; 19.3%), medications to be used with caution (37; 17.0%) and clinically important drug–drug interactions (33; 15.1%). Glimepiride (18), nifedipine (12), insulin (9), paroxetine (22), canagliflozin (15), tramadol (9) and levetiracetam (19) were among the frequently identified agents across the respective Beers categories. Drug selection was the principal PCNE cause domain, accounting for 192 DRPs (88.9%). Conclusion: The study demonstrated a substantial burden of PIMs and medication-related safety concerns among elderly patients with diabetes mellitus, occurring in the setting of extensive polypharmacy and multimorbidity. Systematic medication review using explicit prescribing criteria, renal and dose assessment, and structured DRP classification may facilitate earlier identification of potentially harmful prescribing patterns. Integration of clinical pharmacists into multidisciplinary medication-review processes may further support individualized and safer pharmacotherapy.