Several studies have documented that diabetes impairs bone healing clinically and experimentally. Systemic insulin treatment has been shown to ameliorate impaired diabetic bone healing. However, these studies failed to distinguish between a direct and a systemic effect of insulin upon bone healing. A novel intramedullary insulin delivery system was used in the diabetic BB Wistar femur fracture model to investigate the potential direct effects of insulin on bone healing. Insulin delivery at the fracture site normalized the early (cellular proliferation and chondrogenesis) and late (mineralized tissue, cartilage content and mechanical strength) parameters of diabetic fracture healing without affecting the systemic parameters of blood glucose. These results suggest a critical role for insulin in directly mediating fracture healing and that decreased systemic insulin levels in the diabetic state lead to reduced localized insulin levels at fracture site with concomitant increases in diabetic fracture healing time.