The underlying basis of carpal tunnel syndrome (CTS) and the basis of its increased incidence in diabetes are unknown. We have quantified pathology in an uncompressed nerve (posterior interosseous nerve, PIN) in the forearm between diabetic and non-diabetic patients with CTS and control subjects. In an age- and gender-matched series, 26 diabetic patients with CTS and 20 non-diabetic patients with CTS underwent biopsy of the PIN at the time of surgical carpal tunnel release. Control subjects consisted of ten PIN biopsies taken postmortem and three biopsies taken at the time of wrist surgery. We found PIN myelinated nerve fibre density significantly reduced in diabetic (mean 5,373/mm2 [95% confidence interval, 4,835–5,911]) and non-diabetic (6,617/mm2 [5,697–7,537]) patients with CTS compared to control subjects (9,109/mm2 [7,967–10,250], P < 0.001). Furthermore, diabetic patients had a significantly lower density than non-diabetic patients (P < 0.03). Endoneurial capillary density was also reduced in diabetic (58/mm2 [50–66]) and non-diabetic (67/mm2 [55–78]) patients compared to control subjects (86/mm2 [72–101], P < 0.02) with no difference between diabetic and non-diabetic patients with CTS. Our results suggest that a reduction in myelinated nerve fibre and capillary densities may predispose patients, particularly those with diabetes, to develop CTS.