This study compares the diagnostic performance and image quality of single-shot turbo spin-echo DWI (tseDWI), standard readout-segmented DWI (rsDWI), and a modified rsDWI version (topupDWI) for cholesteatoma diagnostics. Thirty-four patients with newly suspected unilateral cholesteatoma were examined on a 1.5 Tesla MRI scanner. Diagnostic performance was evaluated by calculating and comparing the sensitivity and specificity using histopathological results as the standard of reference. Image quality was independently reviewed by two readers using a 5-point Likert scale evaluating image distortions, susceptibility artifacts, image resolution, lesion conspicuity, and diagnostic confidence. Twenty-five cholesteatomas were histologically confirmed after surgery and originated in the study group. TseDWI showed the highest sensitivity with 96% (95% confidence interval (CI): 88–100%), followed by topupDWI with 92% (95% CI: 81–100%) for both readers. The sensitivity for rsDWI was 76% (95% CI: 59–93%) for reader 1 and 84% (95% CI: 70–98%) for reader 2, respectively. Both tseDWI and topupDWI revealed a specificity of 100% (95% CI: 66–100%) and rsDWI of 89% (95% CI: 52–100%). Both tseDWI and topupDWI showed fewer image distortions and susceptibility artifacts compared to rsDWI. Image resolution was consistently rated best for topupDWI, followed by rsDWI, which both outperformed tseDWI. TopupDWI and tseDWI showed comparable results for lesions’ conspicuity and diagnostic confidence, both outperforming rsDWI. Modified readout-segmented DWI using the topup-correction method is preferable to standard rsDWI and may be regarded as an accurate alternative to single-shot turbo spin-echo DWI in cholesteatoma diagnostics.