Nerve biopsy specimens from 53 patients with leprosy and neuropathy were taken from the sural, the dorsal branch of the ulnar, or the superficial radial nerves and processed for light and electron microscopy. There was inflammation in 40 cases (75%), 7 with a granulomatous reaction, various stages of fibrosis in 35 (66%), and endoneurial vascular neoformation in 7. In two cases, small focal infarcts were associated with marked endoneurial inflammation compressing the vessels, in addition to endoneurial lymphocytic vasculitis. Most had an axonal neuropathy of varying degree, some with total fibre loss, others with predominant small myelinated and unmyelinated fibre loss. Signs of demyelination and remyelination were the main findings in 9 cases (17%). Bacilli were present in endothelial, perineurial, Schwann cells and in macrophages. On two occasions, they lost their alcohol acid resistance, were suspected in semithin sections, and confirmed ultrastructurally. The biopsy was decisive for the diagnosis of leprosy in 15 cases (28%), most without skin lesions. We evaluated the effectiveness of the treatment in 20 (37.7%), 12 without and 8 with bacilli, despite negativity in the skin. The diagnosis of leprosy based on skin lesions was confirmed with the nerve biopsy in 9 cases, 6 had an inflammatory neuropathy suggestive of leprosy in the absence of bacilli, and 3 had nonspecific changes in the sural nerve since the neuropathy was in the upper limbs. We conclude that nerve biopsy is indicated for the diagnosis of leprosy in cases without clinically visible skin lesions and to evaluate the effectiveness of the treatment. In these cases the ultrastructural studies are important for recognition of the bacilli. Vascular lesions may play an important role in the progression of the nerve damage, including the occurrence of focal nerve infarcts which, to our knowledge, have not been previously reported in association with leprosy.