Background Diabetes mellitus is increasing worldwide due to improved lifestyle modifications. Particularly more common in developing countries. Peripheral, central and autonomic neuropathy are the most common complications of diabetes mellitus, which if not detected early can lead to early disability. Event related potential P300 is a non invasive test to detect one of the higher functions of brain namely cognition. The present study was conducted to evaluate impact of diabetes mellitus and its duration on cognition. Aims & Objectives To investigate neurophysiological alterations of higher brain functions in patients with diabetes mellitus. Materials & Method Auditory P300 event related potentials were recorded in 60 diabetic patients (NIDDM & IDDM) attending medical out patient department of Bapuji & Chigateri hospital, Davangere, who had no evidence of stroke, dementia, or any other neurological illness. The P300 wave latencies in diabetic patients were compared with those in neurologically healthy control subjects, with consideration of duration of diabetes and analyzed by using unpaired student T test for comparison between cases and controls and one way ANOVA for multiple group comparisons within diabetics based on duration of diabetes. Results Diabetics had significantly longer P300 latencies and reduced P300 amplitudes than control subjects. There was a positive correlation between prolongation of latencies and duration of diabetes mellitus. Conclusion The present study suggests that diabetes does relate significantly to cognitive decline. ERP P300 can be a useful neurophysiological test to detect cognitive decline early in diabetics and also beneficial to the clinician for further management of the patient.