Objectives: Comparison of outcome of subacromial bursal resection with capsular release for adhesive capsulitis of shoulder secondary to diabetes, with conservative management. Materials and Methods: This study was conducted on 68 patients of adhesive capsulitis of shoulder secondary to diabetes. The patients were divided into two groups: Arthroscopic capsular release group (group I n 32) and Conservative management group (Group II n 36) after fulfilling inclusion/ exclusion criteria. Follow-up was done at 2, 6, 24 weeks, 6 months, 1 year, and 2 years. In addition to pre-operative measurement, at each follow-up pain was assessed by visual analog scale (VAS), range of motion (ROM) was assessed by goniometer and functional outcome was assessed by Constant-Murley score. Values obtained were filled in Excel sheet and analyzed by independent t-test, Wilcoxon Rankosin test, and Analysis of Variance test on Statistical Package for the Social Sciences software. Results: Two patients in Group I and six in Group II were lost to follow-up. There was statistically significant improvement in VAS of both groups at each follow-up, but the noticeable difference was that the patients in arthroscopic release group were pain free by 6 weeks and the pain relief was sustained till final follow-up. In contrast, though there was pain relief in conservative group but they were not completely pain free till final follow-up. There was statistically significant improvement in Constant Murley score in both groups at each follow-up but arthroscopic release group achieved near normal score by 6 months and the improvement was maintained till last follow-up. The comparison of mean and median values of ROM, between the arthroscopic capsular release group and conservative group were statistically significant (P value of 0.001) for each movement. Conclusion: The improvement in ROM, decrease in pain, and functional outcome are better in diabetic patients with adhesive capsulitis undergoing Arthroscopic capsular release than conservative management.