Proinsulin C-peptide treatment can partially prevent nerve dysfunction in type 1 diabetic rats and patients. This could be due to a direct action on nerve fibers or via vascular mechanisms as C-peptide stimulates the nitric oxide (NO) system and NO-mediated vasodilation could potentially account for any beneficial C-peptide effects. To assess this further, we examined neurovascular function in streptozotocin-induced diabetic rats. After 6 weeks of diabetes, rats were treated for 2 weeks with C-peptide to restore circulating levels to those of nondiabetic controls. Additional diabetic groups were given C-peptide with NO synthase inhibitor N(G)-nitro-L-arginine (L-NNA) co-treatment or scrambled C-peptide. Diabetes caused 20 and 16% reductions in sciatic motor and saphenous sensory nerve conduction velocity, which were 62 and 78% corrected, respectively, by C-peptide. L-NNA abolished C-peptide effects on nerve conduction. Sciatic blood flow and vascular conductance were 52 and 41%, respectively, reduced by diabetes (P < 0.001). C-peptide partially (57-66%) corrected these defects, an effect markedly attenuated by L-NNA co-treatment. Scrambled C-peptide was without effect on nerve conduction or perfusion. Thus, C-peptide replacement improves nerve function in experimental diabetes, and the data are compatible with the notion that this is mediated by a NO-sensitive vascular mechanism.