Introduction Tibial nerve entrapment is highly prevalent in diabetic subjects, resulting in significantly more neuropathic complaints and concomitant sensory disturbances. The study aim was to assess the impact of tarsal tunnel syndrome (TTS) and sensory loss at baseline on incident diabetic foot ulceration (DFU) in diabetic patients, since decompressing the tibial nerve might change the natural history of the disease. Methods In this study, 113 subjects with TTS (69 bilateral, 23 left-sided and 21 right-sided) participating in the prospective Rotterdam Diabetic Foot Study were compared to 303 diabetic controls without TTS, regarding incident DFU. Kaplan–Meier analysis and Cox's regression analysis were used to determine the independent hazard of baseline variables for new DFU. Results The median observation period was 836.5 days (IQR, 459–1077.8). In bilateral TTS, 17.4% (95% CI: 8.4–26.3%) of subjects experienced DFU versus 8.3% (95% CI: 5.1–11.6%) in controls (left or right) during follow-up (p = 0.0036). In left-sided TTS, no subjects versus 6.2% (95% CI: 3.4–9.0%) in controls had DFUs (p = 0.243). Incident ulceration was seen in 14.3% (95% CI: −0.7% to −29.3%) of right-sided TTS subjects versus 4.1% (95% CI: 1.5–6.3%) in controls (p = 0.034). Besides HbA1c, diminished sensation at the hallux independently increased the risk of ulceration, in patients with (HR: 4.692, p = 0.003) and without (HR: 2.307, p = 0.002) prior DFU. Discussion Elevated sensory thresholds in TTS render diabetic patients at a higher risk for DFU. With effective surgery, TTS is likely to be an amenable factor to potentially prevent diabetic foot disease and thereby reduce amputation risk. Level of evidence II.