Body balance is regulated by sensory information from the vestibular, visual and somatosensory systems, and changes in one or more of these sensory systems can trigger balance disorders. Individuals with type 2 Diabetes Mellitus (DM2) often present peripheral neuropathy, a condition that alters foot sensory information and can negatively influence balance and gait performance of these subjects. To evaluate and compare balance, gait, functionality and the occurrence of falls between individuals with and without a clinical diagnosis of DM2 with associated peripheral neuropathy. Cross-sectional study, which evaluated seventy individuals, thirty-five with and thirty-five without a clinical diagnosis of DM2, of both sexes and age range between 50 and 85 years, who were recruited from Basic Health Units of Serra Talhada, Pernambuco state, Brazil. The volunteers' balance was analyzed using the Berg Balance Scale, gait-related functional tasks were measured using the Dynamic Gait Index, functional mobility was assessed using the Timed Up and Go test and functionality was assessed using the Katz Index. The occurrence of falls was recorded by the volunteers' self-report. Individuals with DM2 demonstrated the worst performance in balance (p = 0.000) and in gait-related functional tasks (p = 0.000), slower functional mobility (p = 0.000) and worse functionality (p = 0.016) compared to the group without DM2, demonstrating significant differences for all analyzed outcomes. A greater occurrence of falls was observed in individuals with DM2, compared to those without the disease (p = 0.019). Individuals with DM2 demonstrated worse performance on balance, gait-related functional tasks, slower functional mobility and worse functionality compared to those without the disease. Individuals with DM2 had the highest occurrence of falls in this study.