Patients with diabetes mellitus have an impaired bone metabolism; however, the underlying mechanisms are poorly understood. Here, we analyzed the impact of type 2 diabetes mellitus on bone physiology and regeneration using Zucker diabetic fatty (ZDF) rats, an established rat model of insulin-resistant type 2 diabetes mellitus. ZDF rats develop diabetes with vascular complications when fed a Western diet. In 21-wk-old diabetic rats, bone mineral density (BMD) was 22.5% (total) and 54.6% (trabecular) lower at the distal femur and 17.2% (total) and 20.4% (trabecular) lower at the lumbar spine, respectively, compared with nondiabetic animals. BMD distribution measured by backscattered electron imaging postmortem was not different between diabetic and nondiabetic rats, but evaluation of histomorphometric indexes revealed lower mineralized bone volume/tissue volume, trabecular thickness, and trabecular number. Osteoblast differentiation of diabetic rats was impaired based on lower alkaline phosphatase activity (-20%) and mineralized matrix formation (-55%). In addition, the expression of the osteoblast-specific genes bone morphogenetic protein-2, RUNX2, osteocalcin, and osteopontin was reduced by 40-80%. Osteoclast biology was not affected based on tartrate-resistant acidic phosphatase staining, pit formation assay, and gene profiling. To validate the implications of these molecular and cellular findings in a clinically relevant model, a subcritical bone defect of 3 mm was created at the left femur after stabilization with a four-hole plate, and bone regeneration was monitored by X-ray and microcomputed tomography analyses over 12 wk. While nondiabetic rats filled the defects by 57%, diabetic rats showed delayed bone regeneration with only 21% defect filling. In conclusion, we identified suppressed osteoblastogenesis as a cause and mechanism for low bone mass and impaired bone regeneration in a rat model of type 2 diabetes mellitus.