With the changes of life style, diabetes and its complications have become a major cause of morbidity and mortality. It is reasonable to anticipate a continued rise in the incidence of diabetes and its complications along with the aging of the population, increase in adult obesity rate, and other risk factors. Diabetic encephalopathy is one of the severe microvascular complications of diabetes, characterized by impaired cognitive functions, and electrophysiological, neurochemical, and structural abnormalities. It may involve direct neuronal damage caused by intracellular glucose. However, the pathogenesis of this disease is complex and its diagnosis is not very clear. Previous researches have suggested that chronic metabolic alterations, vascular changes, and neuronal apoptosis may play important roles in neuronal loss and damaged cognitive functions. Multiple factors are responsible for neuronal apoptosis, such as disturbed insulin growth factor (IGF) system, hyperglycemia, and the aging process. Recent data suggest that insulin/C-peptide deficiency may exert a primary and key effect in diabetic encephalopathy. Administration of C-peptide partially improves the condition of the IGF system in the brain and prevents neuronal apoptosis in the hippocampus of diabetic patients. Those findings provide a basis for application of C-peptide as a potentially effective therapy for diabetes and diabetic encephalopathy.