Increased protein kinase C (PKC) activity has been implicated in the pathogenesis of diabetic retinopathy and nephropathy. However, the role of PKC in diabetic neuropathy remains unclear. The present study was conducted to compare the effect of PKC inhibition by a PKC-beta-selective inhibitor, LY333531 (LY), on diabetic nerve dysfunction with that of an aldose reductase inhibitor, NZ-314 (NZ). Streptozotocin-induced diabetic rats were treated with or without LY and/or NZ for 4 weeks, and motor nerve conduction velocity (MNCV), coefficient of variation of R-R interval (CVR-R), sciatic nerve blood flow (SNBF), peak latencies of oscillatory potentials on electroretinogram, PKC activities in membranous and cytosolic fractions of sciatic nerves, and polyol contents in the tail nerves were measured. Untreated diabetic rats demonstrated delayed MNCV, decreased CVR-R, reduced SNBF, and prolonged peak latencies of oscillatory potentials. Treatment with LY as well as NZ prevented all these deficits in diabetic rats. There were no significant differences in PKC activities in membranous or cytosolic fractions of sciatic nerves between normal and diabetic rats. Treatment with neither LY nor NZ altered PKC activities. Nerve myo-inositol depletion in diabetic rats was ameliorated not only by NZ, but also by LY. These observations suggest that inhibition of PKC-beta by LY may have a beneficial effect in preventing the development of diabetic nerve dysfunction, and that this effect may be mediated through its action on the endoneurial micro-vasculature.