Background Diabetic neuropathy (DN) is a common and serious complication of diabetes. DN patients are suffering from anxiety, depression, and impairment of functional capacity. Rare studies have assessed the effect of proprioceptive exercise training on anxiety, depression, and functional capacity in DN patients. Aims This 2-month prospective study aims to investigate the effect of proprioceptive exercise training on anxiety, depression, and functional capacity in DN patients. Methods Twenty-eight DN patients with a mean age of 53.2 +/- 5.5 years were included in this prospective study between September and December 2019. They were randomly assigned into two groups, 14 in each group using a random number generator. The proprioceptive exercise group (PEG) received a program of proprioceptive exercise, while the control group (CG) received a conventional treatment without exercise intervention. Berg Balance Scale (BBS), Six-Minute Walk Test (6MWT), Beck Anxiety Inventory (BAI), and Hamilton Depression Rating Scale (HDRS) were investigated before and after 2 months of the study period. Results The findings showed a significant improvement of the BBS, 6MWT, BAI, and HDRS in the PEG (p = 0.003,p < 0.001,p = 0.001, andp = 0.001, respectively) while non-significant changes in the CG (p > 0.05). Comparison between the two groups showed significant differences between the two groups in the all outcome measures in favor of the PEG at the end of the 2 months (BBS,p = 0.032; 6MWT,p = 0.001; BAI,p = 0.031; and HDRS,p = 0.013). Conclusions Two months of proprioceptive exercise may improve functional capacity, anxiety, and depression in DN patients. Serious recommendations should be devoted to encouraging the proprioceptive exercise training among different population, especially DN patients.