Objective Although the microenvironment for peripheral nerve regeneration is permissive, such a mechanism is defective in diabetes, and the molecular mediators remain elusive. Correction added on May 11, 2022, after first online publication: In the preceding sentence, “is ok” was changed to “is defective”. This study aimed to (1) investigate the relationship between skin innervation and collagen pathology in diabetic neuropathy and to (2) clarify the molecular alterations that occur in response to hyperglycemia and their effects on axon regeneration. Methods We addressed this issue using two complementary systems: (1) human skin from patients with diabetic neuropathy and to (2) a coculture model of human dermal fibroblasts (HDFs) with rat dorsal root ganglia neurons in the context of intrinsic neuronal factor and extrinsic microenvironmental collagen and its biosynthetic pathways. Results In diabetic neuropathy, the skin innervation of intraepidermal nerve fiber density (IENFd), a measure of sensory nerve degeneration, was reduced with similar expression of a growth associated protein 43, a marker of nerve regeneration. In contrast, the content and packing of collagen in the diabetic skin became more rigid than the control skin. Sec31a, a protein that regulates the collagen biosynthetic pathway, was upregulated and inversely correlated with IENFd. In the cell model, activated HDFs exposed to high‐glucose medium enhanced the expression of Sec31a and collagen I through the activation of transforming growth factor β, a profibrotic molecule. Sec31a upregulation impaired neurite outgrowth. This effect was reversed by silencing Sec31a expression and neurite outgrowth was resumed. Interpretation The current study provides evidence that Sec31a plays a key role in inhibiting nerve regeneration in diabetic neuropathy. ANN NEUROL 2022;91:821–833