Diekirch is small enough to handle on foot. The station, pedestrian centre, main museums, and Sauer riverside are all close together, and the town is easier to enjoy if you wander rather than drive between stops.
Buses are useful for trips onward to Vianden, Ettelbruck, and nearby villages. For countryside walks and castle-hopping in the north, a car gives more freedom, but it is not needed for central Diekirch itself.