Most studies have focused on the association between diabetes mellitus (DM) and impaired osseous healing, but there is also evidence that diabetes impairs cartilage formation during fracture healing. To investigate the molecular mechanisms by which diabetes affects endochondral ossification, experiments were performed in a model of rat closed fracture healing complicated with diabetes. Diabetic rats were created by a single intravenous injection of streptozotocin (STZ), while controls were treated with vehicle alone. Fractures were made 2 weeks after STZ injection. Animals were killed at 4, 7, 10, 14, 21, 28 and 42 days following fracture, and samples were subject to radiographic, histological and molecular analyses. In the DM group, a significantly smaller cartilaginous callus was formed compared with controls throughout healing, with the cartilage area being reduced rapidly after day 14. When the bone union rate was evaluated radiographically on day 28, DM calluses exhibited a lower rate than controls. However, when evaluated on day 42, both groups showed an equivalent union rate. Cellular proliferation of chondroprogenitor cells and proliferating chondrocytes in soft calluses of the DM group was significantly reduced during early stages of healing (days 4 and 7), but no longer reduced thereafter. Moreover, expression levels of collagen type II, type X and osteopontin (OPN) were constantly low in the DM group. These results show the molecular basis for diminished cartilage formation and delayed union in fracture healing of the STZ-induced diabetic rats.