Type 2 diabetes is a chronic disease that affects millions of Americans and puts a significant burden on the healthcare system. The medical community sees screening patients to identify and treat prediabetes and diabetes early as an important goal; however, universal population screening is operationally not feasible, and screening policies need to take characteristics of the patient population into account. For instance, the screening policy for a population in an affluent neighborhood may differ from that of a safety‐net hospital. The problem of optimal diabetes screening—whom to screen and when to screen—is clearly important, and small improvements could have an enormous impact. However, the problem is typically only discussed from a practical viewpoint in the medical literature; a thorough theoretical framework from an operational viewpoint is largely missing. In this study, we propose an approach that builds on multiple methods—partially observable Markov decision process (POMDP), hidden Markov model (HMM), and predictive risk modeling (PRM). It uses available clinical information, in the form of electronic health records (EHRs), on specific patient populations to derive an optimal policy, which is used to generate screening decisions, individualized for each patient. The POMDP model, used for determining optimal decisions, lies at the core of our approach. We use HMM to estimate the cohort‐specific progression of diabetes (i.e., transition probability matrix) and the emission matrix. We use PRM to generate observations—in the form of individualized risk scores—for the POMDP. Both HMM and PRM are learned from EHR data. Our approach is unique because (i) it introduces a novel way of incorporating predictive modeling into a formal decision framework to derive an optimal screening policy; and (ii) it is based on real clinical data. We fit our model using data on a cohort of more than 60,000 patients over 5 years from a large safety‐net health system and then demonstrate the model's utility by conducting a simulation study. The results indicate that our proposed screening policy outperforms existing guidelines widely used in clinical practice. Our estimates suggest that implementing our policy for the studied cohort would add one quality‐adjusted life year for every patient, and at a cost that is 35% lower, compared with existing guidelines. Our proposed framework is generalizable to other chronic diseases, such as cancer and HIV.