Diabetes mellitus (DM) is associated with a variety of sensory complications. Very little attention has been given to auditory neuropathic complications in DM. The aim of this study was to determine whether type 1 DM affects neural coding of the rapid temporal fluctuations of sounds, and how any deficits may impact on real-world listening tasks. Participants were 30young normal-hearing type 1 DM patients, and 30 age-, sex-, and audiogram-matched healthy controls. Tests included non-invasive electrophysiological measures of auditory nerve and brainstem function using the click-evoked auditory brainstem response (ABR), and of brainstem neural temporal coding using the sustained frequency-following response (FFR), as well as behavioural tests of temporal coding (interaural phase difference, IPD, discrimination and the frequency difference limen, FDL) and tests of speech perception in noise. There were no significant differences between DM patients and controls in the ABR. However, the DM group showed significantly lower FFR responses, higher IPD and FDL thresholds, as well as worse speech-in-noise performance. The results suggest that type 1 DM is associated with degraded neural temporal coding in the brainstem in the absence of an elevation in audiometric threshold, and that this deficit may impact on real-world hearing ability.