OBJECTIVE—Poor peripheral nerve function is prevalent in diabetes and older populations, and it has great potential to contribute to poor physical performance.RESEARCH DESIGN AND METHODS—Cross-sectional analyses were done for the Health, Aging, and Body Composition (Health ABC) Study participants (n = 2,364; 48% men; 38% black; aged 73–82 years). Sensory and motor peripheral nerve function in legs/feet was assessed by 10- and 1.4-g monofilament perception, vibration detection, and peroneal motor nerve conduction amplitude and velocity. The Health ABC lower-extremity performance battery was a supplemented version of the Established Populations for the Epidemiologic Studies of the Elderly battery (chair stands, standing balance, and 6-m walk), adding increased stand duration, single foot stand, and narrow walk.RESULTS—Diabetic participants had fewer chair stands (0.34 vs. 0.36 stands/s), shorter standing balance time (0.69 vs. 0.75 ratio), slower usual walking speed (1.11 vs. 1.14 m/s), slower narrow walking speed (0.80 vs. 0.90 m/s), and lower performance battery score (6.43 vs. 6.93) (all P < 0.05). Peripheral nerve function was associated with each physical performance measure independently. After addition of peripheral nerve function in fully adjusted models, diabetes remained significantly related to a lower performance battery score and slower narrow walking speed but not to chair stands, standing balance, or usual walking speed.CONCLUSIONS—Poor peripheral nerve function accounts for a portion of worse physical performance in diabetes and may be directly associated with physical performance in older diabetic and nondiabetic adults. The impact of peripheral nerve function on incident disability should be evaluated in older adults.