Two classes of adult bone marrow–derived endothelial cell (EC) progenitors have been described, primitive hematopoietic stem cell–related cells and monocytic cells. Both differentiate into ECs and promote vascular growth in vivo but have distinct characteristics. Despite the association of obesity and type 2 diabetes with cardiovascular disease, their effects on primitive EC progenitors (prECPs) have not been examined, and the limited data on monocytic EC progenitors are conflicting. We investigated functional parameters of primitive and monocytic EC progenitors from obese diabetic (Lepr^db) mice. The viability, proliferation, and differentiation of EC progenitors were unaffected in Lepr^db cell cultures under basal condition. However, Lepr^db‐derived prECPs, but not monocytic EC progenitors, were less able to cope with hypoxia and oxidative stress, conditions likely present when EC progenitors are most needed. Intrinsic prECP dysfunction was also apparent in vivo. Whereas injection of nondiabetic prECPs promoted vascularization of skin wounds, Lepr^db‐derived progenitors inhibited it in nondiabetic mice. Additionally, although treatment with Lepr^db‐derived prECPs did not significantly reduce blood flow restoration to ischemic limbs, it resulted in increased tissue necrosis and autoamputation. Thus, type 2 diabetes coupled with obesity seems to induce intrinsic EC progenitor dysfunction that is exacerbated by stress. prECPs are more affected than monocytic progenitors, exhibiting a reduced ability to survive or proliferate. The proangiogenic phenotype of prECPs also seems to convert to an antiangiogenic phenotype in obese diabetic mice. These data suggest that therapies involving prECPs or stem‐like cells in diabetic patients may be inadvisable at this time.