Where does diamond dust occur?

Your answer depends on the material you choose to call 'diamond dust' and the situation in which you find the material.

When diamonds are cut and polished, diamond dust may be produced.

Academically, when describing the geology of diamond, one can ask about the 'streak' of diamond, where the dust of a diamond stone is removed from a diamond.

In extreme cold weather, frozen water droplets are sometimes called diamond dust.

Diamond dust may also be the trade name for some illegal drugs.