Diabetes is the most prevalent metabolic disorder in the United States, and between 50% and 70% of diabetic patients suffer from diabetes-induced neuropathy. Yet our current knowledge of the functional changes in sensory nerves and their distal terminals caused by diabetes is limited. Here, we set out to investigate the functional and morphological consequences of diabetes on specific subtypes of cutaneous sensory nerves in mice. Diabetes was induced in C57Bl/6 mice by a single intraperitoneal injection of streptozotocin. After 6-8 wk, mice were characterized for behavioral sensitivity to mechanical and heat stimuli followed by analysis of sensory function using teased nerve fiber recordings and histological assessment of nerve fiber morphology. Diabetes produced severe functional impairment of C-fibers and rapidly adapting Aβ-fibers, leading to behavioral hyposensitivity to both mechanical and heat stimuli. Electron microscopy images showed that diabetic nerves have axoplasm with more concentrated organelles and frequent axon-myelin separations compared with control nerves. These changes were restricted to the distal nerve segments nearing their innervation territory. Furthermore, the relative proportion of Aβ-fibers was reduced in diabetic skin-nerve preparations compared with nondiabetic control mice. These data identify significant deficits in sensory nerve terminal function that are associated with distal fiber loss, morphological damage, and behavioral hyposensitivity in diabetic C57Bl/6 mice. These findings suggest that diabetes damages sensory nerves, leading to functional deficits in sensory signaling that underlie the loss of tactile acuity and pain sensation associated with insensate diabetic neuropathy.