Background: To evaluate the ability of handheld chromatic pupillometry to reveal and localise retinal neural dysfunction in diabetic patients with and without diabetic retinopathy (DR). Methods: This cross-sectional study included 82 diabetics (DM) and 93 controls (60.4 ± 8.4 years, 44.1% males). DM patients included those without (n = 25, 64.7 ± 6.3 years, 44.0% males) and with DR (n = 57, 60.3 ± 8.5 years, 64.9% males). Changes in horizontal pupil radius in response to blue (469 nm) and red (640 nm) light stimuli were assessed monocularly, in clinics, using a custom-built handheld pupillometer. Pupillometric parameters (phasic constriction amplitudes [predominantly from the outer retina], maximal constriction amplitudes [from the inner and outer retina] and post-illumination pupillary responses [PIPRs; predominantly from the inner retina]) were extracted from baseline-adjusted pupillary light response traces and compared between controls, DM without DR, and DR. Net PIPR was defined as the difference between blue and red PIPRs. Results: Phasic constriction amplitudes to blue and red lights were decreased in DR compared to controls (p < 0.001; p < 0.001). Maximal constriction amplitudes to blue and red lights were decreased in DR compared to DM without DR (p < 0.001; p = 0.02), and in DM without DR compared to controls (p < 0.001; p = 0.005). Net PIPR was decreased in both DR and DM without DR compared to controls (p = 0.02; p = 0.03), suggesting a wavelength-dependent (and hence retinal) pupillometric dysfunction in diabetic patients with or without DR. Conclusions: Handheld chromatic pupillometry can reveal retinal neural dysfunction in diabetes, even without DR. Patients with DM but no DR displayed primarily inner retinal dysfunction, while patients with DR showed both inner and outer retinal dysfunction.