Fracture risk is increased in type 1 diabetes (T1D). Diabetic neuropathy might contribute to this increased risk directly through effects on bone turnover and indirectly through effects on balance, muscle strength, and gait. We compared patients with T1D with (T1DN+, n = 20) and without (T1DN−, n = 20) distal symmetric sensorimotor polyneuropathy and controls (n = 20). We assessed areal bone mineral density (aBMD) and appendicular muscle mass by dual‐energy X‐ray absorptiometry, microarchitecture by high‐resolution peripheral quantitative tomography at the standard ultra‐distal site and at an exploratory 14% bone length site at the tibia and radius, bone turnover markers, and muscle strength, gait, and balance by Short Physical Performance Battery (SPPB). At the standard ultra‐distal site, tibial cortical porosity was 56% higher in T1DN+ compared with T1DN− (p = .009) and correlated positively with the severity of neuropathy (Toronto Clinical Neuropathy Score; r = 0.347, p = .028) and negatively with nerve conduction amplitude and velocity (r = −0.386, p = .015 and r = −0.358, p = .025, respectively). Similar negative correlations were also observed at the radius (r = −0.484, p = .006 and r = −0.446, p = .012, respectively). At the exploratory 14% offset site (less distal), we found higher trabecular volumetric BMD (tibia 25%, p = .024; radius 46%, p = .017), trabecular bone volume (tibia 25%, p = .023; radius 46%, p = .017), and trabecular number (tibia 22%, p = .014; radius 30%, p = .010) in T1DN– compared with controls. Both CTX and PINP were lower in participants with TD1 compared with controls. No difference was found in aBMD and appendicular muscle mass. T1DN+ had worse performance in the SPPB compared with T1DN– and control. In summary, neuropathy was associated with cortical porosity and worse performance in physical tests. Our findings suggest that bone structure does not fully explain the rate of fractures in T1D. We conclude that the increase in the risk of fractures in T1D is multifactorial with both skeletal and non‐skeletal contributions. © 2021 The Authors. Journal of Bone and Mineral Research published by Wiley Periodicals LLC on behalf of American Society for Bone and Mineral Research (ASBMR).