Background: Peripheral neuropathy and cognitive decline both are very common in diabetics but relationship between them is yet unclear. Hence, this study aimed at assessing the cognitive functions in patients of type 2 diabetes mellitus (T2DM) with diabetic peripheral neuropathy (DPN) and compare them with that of patients of T2DM without DPN and apparently healthy controls. Materials and Methods: In this observational cross sectional study eligible T2DM patients were divided into two groups with DPN (25) and without DPN (25) by Nerve conduction velocity (NCV). 25 apparently healthy controls were taken. Cognitive functions were tested by using P300 event related potential. Result: P300 latency on Pz was significantly delayed in the T2DM with DPN as compared to T2DM without DPN (p __ampersandsignlt; 0.05) and controls (p __ampersandsignlt; 0.01). The average latency was also significantly delayed in T2DM with DPN as compared to controls(p __ampersandsignlt; 0.05).A positive correlation between duration of diagnosis of T2DM (r= 0.3339, p= 0.0178*) with P300 Latency Fz was observed. Conclusion: Cognitive functions are impaired in T2DM with DPN. Duration of illness is positively correlated to decline of cognitive functions.