Endogenous stem cells in the bone marrow respond to environmental cues and contribute to tissue maintenance and repair. In type 2 diabetes, a multifaceted metabolic disease characterized by insulin resistance and hyperglycemia, major complications are seen in multiple organ systems. To evaluate the effects of this disease on the endogenous stem cell population, we used a type 2 diabetic mouse model (db/db), which recapitulates these diabetic phenotypes. Bone marrow-derived mesenchymal stem cells (MSCs) from db/db mice were characterized in vitro using flow cytometric cell population analysis, differentiation, gene expression, and proliferation assays. Diabetic MSCs were evaluated for their therapeutic potential in vivo using an excisional splint wound model in both nondiabetic wild-type and diabetic mice. Diabetic animals possessed fewer MSCs, which were proliferation and survival impaired in vitro. Examination of the recruitment response of stem and progenitor cells after wounding revealed that significantly fewer endogenous MSCs homed to the site of injury in diabetic subjects. Although direct engraftment of healthy MSCs accelerated wound closure in both healthy and diabetic subjects, diabetic MSC engraftment produced limited improvement in the diabetic subjects and could not produce the same therapeutic outcomes as in their nondiabetic counterparts in vivo. Our data reveal stem cell impairment as a major complication of type 2 diabetes in mice and suggest that the disease may stably alter endogenous MSCs. These results have implications for the efficiency of autologous therapies in diabetic patients and identify endogenous MSCs as a potential therapeutic target.