Objective: To determine whether tibial neurolysis performed as a surgical intervention for patients with diabetic neuropathy and superimposed tibial nerve compression in the prevention of the diabetic foot is cost effective when compared to the current prevention program. Design: A baseline analysis was built on a five-year model to determine the cumulative incidence of foot ulcers and amputations with each strategy. Subsequently, a cost-effectiveness analysis and cohort-level Markov simulations were conducted with a model composed of 20 six-month cycles. A sensitivity analysis was also performed. Setting: A Markov model was used to simulate the effects of standard prevention compared to tibial neurolysis on the long-term costs associated with foot ulcers and amputations. This model included eight health states. Participants: Each cohort includes simulated patients with diabetic neuropathy at different levels of risk of developing foot ulcers and amputations. Primary and secondary outcome measures: The primary outcome was the long-term trends concerning the development of ulcers and amputations with each strategy. The secondary outcome measures were quality adjusted life years (QALYs); incremental cost-effectiveness; and net monetary benefits of the optimal strategy. Results: When compared to standard prevention, for a patient population of 10,000, surgery prevented a simulated total of 1,447 ulcers and 409 amputations over a period of 5 years. In a subsequent analysis that consisted of 20 six-month cycles (10 years), the incremental cost of tibial neurolysis compared to current prevention was $12,772.28; the incremental effectiveness was 0.41 QALYs; and the incremental cost-effectiveness ratio (ICER) was $31,330.78. Survival was 73% for those receiving medical prevention compared to 95% for those undergoing surgery. Conclusion: These results suggest that among patients with diabetic neuropathy and superimposed nerve compression, surgery is more effective at preventing serious comorbidities and is associated with a higher survival over time. It also generated greater long-term economic benefits.