Introduction: Type 2 diabetes poses an increasing public health burden in South Africa (SA) with obesity as the main driver of the epidemic. Consumption of sugar sweetened beverages (SSBs) is linked to weight gain and reducing SSB consumption may significantly impact the prevalence of obesity and related diseases. We estimated the effect of a 20% SSB tax on the burden of diabetes in SA. Methods and Findings: We constructed a life table-based model in Microsoft Excel (2010). Consumption data from the 2012 SA National Health and Nutrition Examination Survey, previously published own- and cross-price elasticities of SSBs and energy balance equations were used to estimate changes in daily energy intake and its projected impact on BMI arising from increased SSB prices. Diabetes relative risk and prevalent years lived with disability estimates from the Global Burden of Disease Study and modelled disease epidemiology estimates from a previous study were used to estimate the effect of the BMI changes on diabetes burden. Diabetes cost estimates were obtained from the South African Council for Medical Schemes. Over 20 years, a 20% SSB tax could reduce diabetes incident cases by 106 000 in women (95% uncertainty interval (UI) 70 000–142 000) and by 54 000 in men (95% UI: 33 000–80 000); and prevalence in all adults by 4.0% (95% UI: 2.7%-5.3%). Cumulatively over twenty years, approximately 21 000 (95% UI: 14 000–29 000) adult T2DM-related deaths, 374 000 DALYs attributed to T2DM (95% UI: 299 000–463 000) and over ZAR10 billion T2DM healthcare costs (95% UI: ZAR6.8–14.0 billion) equivalent to USD860 million (95% UI: USD570 million–USD1.2 billion) may be averted. Conclusion: Fiscal policy on SSBs has the potential to mitigate the diabetes epidemic in South Africa and contribute to the National Department of Health goals stated in the National NCD strategic plan.