Diabetic neuropathy is based on the impairment of nerve blood flow and the metabolic disorder. Although the vasodilating agents and anticoagulants improve nerve function and symptoms in diabetic neuropathy, more effective treatments are needed. Because endothelial progenitor cells (EPCs) have been identified in adult human peripheral blood, many studies have shown that transplantation of EPCs improves circulation to ischemic tissues. In this study, we have demonstrated that therapeutic neovascularization using human umbilical cord blood-derived EPCs reversed diabetic neuropathy. EPCs were isolated and expanded on day 7 of culture from cord blood mononuclear cells. Unilateral intramuscular injection of EPCs into hindlimb skeletal muscles significantly ameliorated impaired sciatic motor nerve conduction velocity and sciatic nerve blood flow in the EPC-injected side of streptozotocin-induced diabetic nude rats compared with the saline-injected side of diabetic nude rats. Histological study revealed an increased number of microvessels in hindlimb skeletal muscles in the EPC-injected side of diabetic rats. These findings suggest that transplantation of EPCs from cord blood may be a useful treatment for diabetic neuropathy.