Diabetic neuropathy is a neurological complication of diabetes that causes significant morbidity and, because of the obesity-driven rise in incidence of type 2 diabetes, is becoming a major international health problem. Mitochondrial phenotype is abnormal in sensory neurons in diabetes and may contribute to the etiology of diabetic neuropathy where a distal dying-back neurodegenerative process is a key component contributing to fiber loss. This review summarizes the major features of mitochondrial dysfunction in neurons and Schwann cells in human diabetic patients and in experimental animal models (primarily exhibiting type 1 diabetes). This article attempts to relate these findings to the development of critical neuropathological hallmarks of the disease. Recent work reveals that hyperglycemia in diabetes triggers nutrient excess in neurons that, in turn, mediates a phenotypic change in mitochondrial biology through alteration of the AMP-activated protein kinase (AMPK)/peroxisome proliferator-activated receptor γ coactivator-1α (PGC-1α) signaling axis. This vital energy sensing metabolic pathway modulates mitochondrial function, biogenesis and regeneration. The bioenergetic phenotype of mitochondria in diabetic neurons is aberrant due to deleterious alterations in expression and activity of respiratory chain components as a direct consequence of abnormal AMPK/PGC-1α signaling. Utilization of innovative respirometry equipment to analyze mitochondrial function of cultured adult sensory neurons from diabetic rodents shows that the outcome for cellular bioenergetics is a reduced adaptability to fluctuations in ATP demand. The diabetes-induced maladaptive process is hypothesized to result in exhaustion of the ATP supply in the distal nerve compartment and induction of nerve fiber dissolution. The role of mitochondrial dysfunction in the etiology of diabetic neuropathy is compared with other types of neuropathy with a distal dying-back pathology such as Friedreich ataxia, Charcot–Marie–Tooth disease type 2 and human immunodeficiency virus-associated distal-symmetric neuropathy.