Diabetic Macular Edema (DME) is caused by accumulation of extracellular fluid from hyperpermeable capillaries within the macula. DME is one of the leading causes of blindness among Diabetes Mellitus (DM) patients. Early detection followed by laser photocoagulation can save the visual loss. This review discusses various imaging modalities viz. biomicroscopy, Fluorescein Angiography (FA), Optical Coherence Tomography (OCT) and colour fundus photographs used for diagnosis of DME. Various automated DME grading systems using retinal fundus images, associated retinal image processing techniques for fovea, exudate detection and segmentation are presented. We have also compared various imaging modalities and automated screening methods used for DME grading. The reviewed literature indicates that FA and OCT identify DME related changes accurately. FA is an invasive method, which uses fluorescein dye, and OCT is an expensive imaging method compared to fundus photographs. Moreover, using fundus images DME can be identified and automated. DME grading algorithms can be implemented for telescreening. Hence, fundus imaging based DME grading is more suitable and affordable method compared to biomicroscopy, FA, and OCT modalities.