Angiogenesis, the formation of new blood vessels, is a physiological response to tissue ischemia. Clinical evidence suggests that diabetic patients have endothelial dysfunction and impaired angiogenesis in response to ischemia. Here, we investigated the impact of diabetes on ischemia-induced collateral growth, and tested the hypothesis that peroxisome proliferator-activated receptor-gamma (PPARgamma) agonist augments collateral flow to ischemic tissue. We conducted unilateral hindlimb ischemia surgery in KKAy mice. Blood flow recovery was markedly impaired in diabetic mice compared with that in wild-type mice as determined by laser Doppler imaging. Treatment of KKAy mice with pioglitazone partially restored the blood flow recovery. Anti-CD31 immunostaining revealed that pioglitazone also significantly improved the capillary density in ischemic limb muscle. Endothelial NO synthase (eNOS) activity was ameliorated in diabetic mice treated with pioglitazone as determined by vasorelaxation in response to acetylcholine. Pioglitazone normalized vascular endothelial growth factor (VEGF) protein levels, which was decreased in ischemic muscle of KKAy mice, and up-regulated eNOS phosphorylation at Ser-1177 and Akt phosphorylation at Ser-473 in ischemic muscle. Pioglitazone had no beneficial effects on blood flow recovery in diabetic mice treated with N(G)-nitro-l-arginine methyl ester (L-NAME). Our findings demonstrate that pioglitazone significantly ameliorates endothelial dysfunction and enhances blood flow recovery after tissue ischemia in diabetic mice. Activation of eNOS appears to be essential for pioglitazone to promote angiogenesis in ischemic tissue.