Neuroelectrophysiological recordings represent a non-invasive and reproducible method of detecting central and peripheral nervous system alterations in diabetes mellitus. In order to evaluate whether the normalization of metabolic control obtained by pancreatic islet transplantation could reverse diabetic neuroelectrophysiological alterations, or prevent further deterioration, we used an experimental model in which pancreatic islets (n = 1200) were injected into the portal vein of inbred Lewis rats (used as islet donors as well as recipients). Islets were injected 4 months after diabetes induction, since previous work had shown functional but not morphological damage at the nervous tissue level at this stage of the disease. Visual (V), brainstem auditory (BA) and somatosensory (S) evoked potentials (EPs) were measured in streptozotocin-induced, islet-recipient diabetic rats (n = 7), streptozotocin-induced diabetic rats (n = 16) and non-diabetic control rats (n = 12). Metabolic parameters and electrophysiological recordings were evaluated before diabetes induction, before transplantation and 4 months later. After transplantation, glycaemic levels returned to normal values within 1 week and remained so until the end of the study, as confirmed by a normal oral glucose tolerance test and by an increase in body weight. Electrophysiological recordings were altered in diabetic animals before transplantation. Four months after transplantation EP recordings improved, with a detectable gradient from the peripheral to the central structures. SEPs were significantly improved in the peripheral tarsus-L6 tract and the L6-cortex tract (P < 0.005 and P < 0.01 versus diabetic rats) and were ameliorated without achieving statistical significance in the central L6-cortex tract. BAEP latency values tended to improve in transplanted rats, but the differences versus non-transplanted diabetic animals failed to reach significance. VEP values remained clearly pathological and even deteriorated after transplantation. These results show that normalization of metabolic control by pancreatic islet transplantation can reverse some of the already established neuroelectrophysiological alterations at the peripheral nervous system level, but does not affect other alterations at the central nervous system level.