Diabetic neuropathy (DNP), afflicting sensory and motor nerve fibers, is a major complication in diabetes. The underlying cellular mechanisms of axon degeneration are poorly understood. IGFBP5, an inhibitory binding protein for insulin-like growth factor 1 (IGF1) is highly up-regulated in nerve biopsies of patients with DNP. We investigated the pathogenic relevance of this finding in transgenic mice overexpressing IGFBP5 in motor axons and sensory nerve fibers. These mice develop motor axonopathy and sensory deficits similar to those seen in DNP. Motor axon degeneration was also observed in mice in which the IGF1 receptor (IGF1R) was conditionally depleted in motoneurons, indicating that reduced activity of IGF1 on IGF1R in motoneurons is responsible for the observed effect. These data provide evidence that elevated expression of IGFBP5 in diabetic nerves reduces the availability of IGF1 for IGF1R on motor axons, thus leading to progressive neurodegeneration. Inhibition of IGFBP5 could thus offer novel treatment strategies for DNP.