Salutogenic effects of living near aquatic areas (blue space) remain underexplored, particularly in non-coastal and non-urban areas. We evaluated associations of residential proximity to inland freshwater blue space with new onset type 2 diabetes (T2D) in central and northeast Pennsylvania, USA, using medical records to conduct a nested case-control study. T2D cases (n=15,888) were identified from diabetes diagnoses, medication orders, and laboratory test results and frequency-matched on age, sex, and encounter year to diabetes-free controls (n=79,435). We calculated distance from individual residences to the nearest lake, river, tributary, or large stream, and residence within the 100-year floodplain. Logistic regression models adjusted for community socioeconomic deprivation and other confounding variables and stratified by community type (townships [rural/suburban], boroughs [small towns], city census tracts). Compared to individuals living ≥1.25 miles from blue space, those within 0.25 miles had 8% and 17% higher odds of T2D onset in townships and boroughs, respectively. Among city residents, T2D odds were 38-39% higher for those living 0.25 to <0.75 miles from blue space. Residing within the floodplain was associated with 16% and 14% higher T2D odds in townships and boroughs. A post-hoc analysis demonstrated patterns of lower residential property values with nearer distance to the region's predominant waterbody, suggesting unmeasured confounding by socioeconomic disadvantage. This may explain our unexpected findings of higher T2D odds with closer proximity to blue space. Our findings highlight the importance of historic and economic context and interrelated factors such as flood risk and lack of waterfront development in blue space research.