He is the Merton H. Miller Distinguished Service Professor of Finance at the University of Chicago Booth School of Business, where he has taught since 1979.

In October 2022, Diamond was awarded the Nobel Memorial Prize in Economic Sciences jointly with Ben Bernanke and Philip H. Dybvig.

Diamond matriculated at Brown University, where he decided to study economics instead, after taking a course on Milton Friedman and Anna Schwartz's A Monetary History of the United States.

[13] According to the Committee for the Nobel Memorial Prize in Economic Sciences, Diamond's model is considered "the first truly micro-founded theory of financial intermediation.

"[15] He was again named as a contender for the prize in 2013 by economist Hubert Fromlet,[16] The Wall Street Journal,[17] and Catherine Rampell, writing for The New York Times.

[18] On October 10, 2022, Diamond received the Nobel Memorial Prize in Economic Sciences jointly with long-time collaborator Philip H. Dybvig and former Chair of the Federal Reserve, Ben Bernanke.