Bone marrow-derived mesenchymal stem cells (MSCs) possess multilineage differentiation potential and can be used for the treatment of diabetic heart failure. However, hyperglycemia can affect the function of MSCs adversely and merits the requirement for a strategy to correct this anomaly. MSCs were isolated from the tibias and femurs of C57BL/6 wild-type mice at 60 days after induction of diabetes by streptozotocin. MSCs were characterized by flow cytometry for CD44 (97.7%), CD90 (95.4%), and CD105 (92.3%) markers and were preconditioned with insulin-like growth factor-1 (IGF-1) (50 ng/mL) and fibroblast growth factor-2 (FGF-2) (50 ng/mL) in combination for 1 h in serum-free Iscove's modified Dulbecco's medium. This was followed by hypoxic and high glucose insults to mimic diabetic heart microenvironment and to study the effect of preconditioning. Diabetic MSCs after treatment showed upregulation of IGF-1, FGF-2, Akt, GATA-4, and Nkx 2.5 and downregulation of p16(INK4a), p66(shc), p53, Bax, and Bak. Under hypoxic stress, preconditioned diabetic MSCs showed high superoxide dismutase activity (52.3%) compared with untreated cells (36.9%). This was concomitant with low numbers of annexin-V-positive cells, high in vitro tube-forming ability, and high chemotactic mobility to stromal cell-derived factor-1α after preconditioning in diabetic MSCs. Upregulation of Ang-I and VEGF and downregulation of p16(INK4a) were also observed in preconditioned cells under conditions of high glucose insult. Therefore, preconditioning with IGF-1 and FGF-2 in combination represents a novel strategy to augment MSC function affected by diabetes and holds significance for future strategies to treat diabetic heart failure.