Clinically evident retinal vascular disease in patients with diabetes mellitus may be preceded by an increase in visual evoked potential latency in electrophysiologic testing. This increase may indicate either retinal or optic nerve dysfunction. To determine the origin of the latency increase we initiated a cross-sectional study of simultaneous pattern-reversal electroretinograms and visual evoked potentials. We recorded transient (3.8 reversals/second) pattern electroretinograms and visual evoked potentials using both 15' and 60' high-contrast black-white checks. Fifty-five diabetic patients (34 with no retinopathy and 21 with background retinopathy) and 34 age-matched visual normals (controls) were tested. Group data in diabetics showed significant latency increases in both tests, but not significant differences in retinocortical conduction time were noted. These results suggest that the increases in visual evoked potential latency exhibited by diabetic patients with little or no retinopathy usually reflect altered retinal function rather than optic neuropathy. Two patients with background retinopathy exhibited retinocortical conduction times that exceeded the normal mean by more than two standard deviations, suggesting that optic neuropathy may occasionally occur in diabetic patients with background retinopathy.