Diabetes mellitus is associated with one or more kinds of stimulus-evoked pain including hyperalgesia and allodynia. The mechanisms underlying painful diabetic neuropathy remain poorly understood. Previous studies demonstrate an important role of vanilloid receptor 1 (VR1) in inflammation and injury-induced pain. Here we investigated the function and expression of VR1 in dorsal root ganglion (DRG) neurons isolated from streptozotocin-induced diabetic rats between 4 and 8 weeks after onset of diabetes. DRG neurons from diabetic rats showed significant increases in capsaicin- and proton-activated inward currents. These evoked currents were completely blocked by the capsaicin antagonist capsazepine. Capsaicin-induced desensitization of VR1 was down-regulated, whereas VR1 re-sensitization was up-regulated in DRG neurons from diabetic rats. The protein kinase C (PKC) activator phorbol 12-myristate 13-acetate blunted VR1 desensitization, and this effect was reversible in the presence of the PKC inhibitor bisindolylmaleimide I. Compared with the controls, VR1 protein was decreased in DRG whole-cell homogenates from diabetic rats, but increased levels of VR1 protein were observed on plasma membranes. Of interest, the tetrameric form of VR1 increased significantly in DRGs from diabetic rats. Increased phosphorylation levels of VR1 were also observed in DRG neurons from diabetic rats. Colocalization studies demonstrated that VR1 expression was increased in large myelinated A-fiber DRG neurons, whereas it was decreased in small unmyelinated C-fiber neurons as a result of diabetes. These results suggest that painful diabetic neuropathy is associated with altered cell-specific expression of the VR1 receptor that is coupled to increased function through PKC-mediated phosphorylation, oligomerization, and targeted expression on the cell surface membrane.