Objectives (1) To determine the prevalence of metformin prescribing in type 2 diabetes with a contraindication and (2) to explore whether metformin use on top of contraindications modified the risks of lactic acidosis, hospitalization, and death in type 2 diabetes. Setting Ambulatory diabetic clinics of the secondary-level care General Hospital of Hatyai district, Songkhla province, South Thailand. Method A cross-sectional study was carried out for the objective (1). A retrospective cohort study was applied to meet the objective (2). Out-patient medical case notes were reviewed for metformin use, number of hospitalizations, lactic acidosis cases, death cases, and the presence of contraindications, which were limited to: (1) chronic renal impairments, (2) chronic liver diseases, and (3) cardiac failure. Only documented diagnoses of the above conditions were counted. Main outcome measure The prevalence of metformin use in type 2 diabetes with a contraindication; odds ratios (ORs) of the occurrences of lactic acidosis, hospitalization, and death in type 2 diabetes with a contraindication modified by metformin use. Results A total of 1,630 type 2 diabetic outpatients were identified; 19.3% (315/1,630) had at least one contraindication to metformin use, with chronic renal impairment being the most frequent risk (78%, 246/315). Of those with a contraindication, 84.4% (266/315) were metformin users. Compared to non-metformin users, there were no significant differences in the number of hospitalizations and deaths. No cases of lactic acidosis were evident. Metformin use in the presence of contraindications did not affect the risks of hospitalization (OR 0.73, 95% confidence interval [CI] 0.38–1.4, P = 0.34) or death (OR 0.58, 95% CI 0.11–3.15, P = 0.53). Other patient factors, such as the female gender or having diabetes-related complications, had significant influences on both outcomes. Conclusion The prevalence of type 2 diabetes receiving metformin despite having a contraindication was over 80%. However, metformin use in such conditions did not appear to increase the risks of hospitalization and death. No lactic acidosis was reported. Other patient factors than metformin affect the risks of hospitalization and death.