The purpose of this study was to investigate the effects of diabetes on mesenchymal stem cells (MSCs) in terms of their angiogenic and therapeutic potential for repairing tissue ischemia. We culture-isolated MSCs from streptozotocin-induced diabetic rats (D-MSCs) and compared their proliferation, differentiation, and angiogenic effects with those from normal rats (N-MSCs). The angiogenic effects of MSCs were evaluated by real-time PCR, in vitro tube formation assay, and transplantation of the MSCs into a hindlimb ischemia model followed by laser Doppler perfusion imaging. The number of MSCs derived from diabetic rats was smaller, and their proliferation rate was slower than N-MSCs. Upon induction of differentiation, the osteogenic and angiogenic differentiation of D-MSCs were aberrant compared to N-MSCs. The expression of angiogenic factors was lower in D-MSCs than N-MSCs. D-MSCs cocultured with endothelial cells resulted in decreased tube formation compared to N-MSCs. D-MSCs were ineffective to improve hindlimb ischemia and showed lower capillary density and angiogenic gene expression in ischemic limbs than N-MSCs. D-MSCs have defective proliferation and angiogenic activities and are ineffective for repairing hindlimb ischemia. Newer measures are needed before MSCs can be employed as a source for autologous cell therapy.