1. Circulating bone marrow (BM)-derived endothelial progenitor cells (EPCs) play an important role in neovascularization. In the present study, we investigated the mechanisms underlying the reduction in circulating EPCs in a mouse model of diabetes induced by streptozotocin. 2. Compared with non-diabetic controls, diabetic mice had reduced circulating EPCs (0.59 +/- 0.11 vs 0.94 +/- 0.21%, respectively; P < 0.01) and increased plasma endothelial microparticles (18 642 +/- 6809 vs 5692 +/- 1862/mL, respectively; P < 0.01). In a mouse bone marrow (BM) transplantation model, increased adhesion of transplanted BM cells to aortas of diabetic mice was observed compared with control (900 +/- 194 vs 431 +/- 109 cells/mm(2), respectively; P < 0.01). 3. Following hindlimb ischaemia, diabetic mice exhibited suppressed EPC mobilization, a reduction in the expected increase in capillary density and suppressed restoration of transcutaneous oxygen pressure in the ischaemic tissue. Diabetic mice also showed impaired ischaemia-induced upregulation of vascular endothelial growth factor (VEGF), hypoxia-inducible factor (HIF)-1 alpha and interleukin-1 beta, an exaggerated increase in matrix metalloproteinase (MMP)-2 and -9 and a suppressed increase in tissue inhibitor of matrix metalloproteinase (TIMP)-1. On multivariate analysis, VEGF expression was the only independent factor related to circulating EPC count. 4. In conclusion, the data indicate that the decrease in basal circulating EPCs in diabetes may be attributable, in part, to consumptive loss of EPCs due to increased endothelial damage. Impairment of ischaemia-induced EPC mobilization in the diabetic mouse model is associated with altered HIF-1 alpha/VEGF and MMP/TIMP regulation and represents a novel mechanism underlying defective postischaemic neovascularization in diabetes.