Up to 80% of patients with diabetes mellitus develop lower urinary tract complications, most commonly diabetic bladder dysfunction (DBD). The aim of this study was to investigate the impact of diabetes on the function of the inner bladder lining (urothelium). Bladder compliance and intraluminal release of urothelial mediators, adenosine triphosphate (ATP) and acetylcholine (ACh) in response to distension were investigated in whole bladders isolated from 2‐ and 12‐week streptozotocin (STZ)‐diabetic rats. Intact and urothelium‐denuded bladder strips were used to assess the influence of the urothelium on bladder contractility. Intraluminal ATP release was significantly enhanced at 2 weeks of diabetes, although not at 12 weeks. In contrast, intraluminal ACh release was unaltered by diabetes. Bladder compliance was also significantly enhanced at both 2 and 12 weeks of diabetes, with greatly reduced intravesical pressures in response to distension. Nerve‐evoked contractions of bladder strips were significantly greater at 2 weeks of diabetes. When the urothelium was absent, nerve‐evoked contractions were reduced, but contractions remained significantly elevated at lower frequencies of stimulation (<5 Hz) in diabetics. Interestingly, although relaxations of bladder strips to isoprenaline were unaltered by diabetes, removal of the urothelium unmasked significantly enhanced relaxations in strips from 2‐ and 12‐week diabetic animals. In conclusion, diabetes alters urothelial function. Enhanced urothelial ATP release may be involved in the hypercontractility observed at early time points of diabetes. These alterations are time‐dependent and may contribute to the mechanisms at play during the development of diabetic bladder dysfunction.