Diabetic neuropathy is the most common microvascular complication of diabetes. Here we show that, in streptozotocin-induced diabetic rodents with neuropathy, a subpopulation of bone-marrow-derived cells marked by proinsulin expression migrates to and fuses with neurons in the sciatic nerve and dorsal root ganglion (DRG), resulting in neuronal dysfunction and accelerated apoptosis. The absence or presence of proinsulin expression, which identifies the fusion cells, and not the disease state (nondiabetic vs. diabetic) of the rats from which the DRG neurons are isolated determines whether the DRG neurons show normal or abnormal calcium homeostasis and apoptosis. These results suggest that bone-marrow-derived cells may play an important role in the pathogenesis of diabetic complications.