Background: objectives The complete syndrome of diabetes mellitus, related metabolic aberrations and diabetic complications is posing a major threat in the 21st century. Cognitive dysfunction is a well-known complication of diabetes which continues to be investigated. The objective of this study was to evaluate the cognitive functions using comprehensive neuropsychological and electrophysiological tests in diabetics and non diabetics and find out the usefulness of psychometric tests in assessing cognitive dysfunction. Methodology The study was conducted on 50 diabetics and 50 non diabetics aged between 40 and 59 years. Cognition was assessed using psychometric tests and electrophysiological tests. Psychometric tests included MMSE, FWSTMT and CDT. Electrophysiological test included P300 potential which was recorded using RMS EMG EP MARK II equipment in the auspices of Department of Physiology, S.S.Institute of Medical Sciences & Research Centre, Davangere. P300 data analysis was done using Student unpaired T test to compare the mean of two groups. Chi Square test was used to analyze MMSE and CDT. Fischer exact test was used to analyze FWSTMT. Differences were considered significant at P<0.001. Results The absolute peak latencies of P3 component of endogenous cognitive evoked potentials was significantly prolonged among diabetics (334.8 + 20.8) as compared to controls (285.7 + 14.9). We did not detect statistically significant difference between groups when analyzed for N2 in Cz and Fz. Psychometric tests did not reveal cognitive deficits in diabetics. Interpretation and conclusion This study identifies prevalence of cognitive dysfunction in diabetic patients when assessed using electrophysiological tests. Psychometric tests were not sensitive to detect subtle cognitive changes. Good cognitive function is critical to safely manage diabetes and draws attention to various challenges in their management. Clinicians should consider screening for cognitive function in diabetics using P300, as it is effective in detecting subtle changes much before their clinical manifestation.