Neonatal hypoxic-ischemic encephalopathy (HIE) is the leading cause of acquired neonatal brain injury with the risk of developing serious neurological sequelae and death. An accurate and robust prediction of short- and long-term outcomes may provide clinicians and families with fundamental evidence for their decision-making, the design of treatment strategies, and the discussion of developmental intervention plans after discharge. Diffusion tensor imaging (DTI) is one of the most powerful neuroimaging tools with which to predict the prognosis of neonatal HIE by providing microscopic features that cannot be assessed by conventional magnetic resonance imaging (MRI). DTI provides various scalar measures that represent the properties of the tissue, such as fractional anisotropy (FA) and mean diffusivity (MD). Since the characteristics of the diffusion of water molecules represented by these measures are affected by the microscopic cellular and extracellular environment, such as the orientation of structural components and cell density, they are often used to study the normal developmental trajectory of the brain and as indicators of various tissue damage, including HIE-related pathologies, such as cytotoxic edema, vascular edema, inflammation, cell death, and Wallerian degeneration. Previous studies have demonstrated widespread alteration in DTI measurements in severe cases of HIE and more localized changes in neonates with mild-to-moderate HIE. In an attempt to establish cutoff values to predict the occurrence of neurological sequelae, MD and FA measurements in the corpus callosum, thalamus, basal ganglia, corticospinal tract, and frontal white matter have proven to have an excellent ability to predict severe neurological outcomes. In addition, a recent study has suggested that a data-driven, unbiased approach using machine learning techniques on features obtained from whole-brain image quantification may accurately predict the prognosis of HIE, including for mild-to-moderate cases. Further efforts are needed to overcome current challenges, such as MRI infrastructure, diffusion modeling methods, and data harmonization for clinical application. In addition, external validation of predictive models is essential for clinical application of DTI to prognostication.