Loss of cutaneous innervation from sensory neuropathy is included among mechanisms for impaired healing of diabetic skin wounds. The relationships between cutaneous axons and their local microenvironment during wound healing are challenged in diabetes. Here, we show that secondary wound closure of the hairy dorsal skin of mice is delayed by diabetes and is associated with not only a pre-existing loss of cutaneous axons but substantial retraction of axons around the wound. At 7d following a 3mm punch wound, a critical period of healing and reinnervation, both intact skin nearby the wound and skin directly at the wound margins had over 30-50% fewer axons and a larger deficit of ingrowing axons in diabetics. These findings contrasted with a pre-existing 10-15% deficit in axons. Moreover, new diabetic ingrowing axons had less evidence of plasticity. Unexpectedly, hair follicles adjacent to the wounds had a 70% reduction in their innervation associated with depleted expression of hair follicular stem cell markers. These impairments were associated with the local upregulation of two established axon regenerative ‘roadblocks’: PTEN and RHOA, potential but thus far unexplored mediators of these changes. The overall findings identify striking and unexpected superimposed cutaneous axon loss or retraction beyond that expected of diabetic neuropathy alone, associated with experimental diabetic skin wounding, a finding that prompts new considerations in diabetic wounds.