The purpose of this study was to investigate the effects of diabetes on mesenchymal stem cells (MSCs) in terms of their angiogenic and therapeutic potential for repairing tissue ischemia. We culture-isolated MSCs from streptozotocin-induced diabetic rats (D-MSCs) and compared their proliferation, differentiation, and angiogenic effects with those from normal rats (N-MSCs). The angiogenic effects of MSCs were evaluated by real-time RT-PCR, in vitro tube formation assay, and transplantation of the MSCs into a hindlimb ischemia model followed by laser Doppler perfusion imaging. The number of MSCs derived from diabetic rats was smaller and their proliferation rate was slower than N-MSCs. Upon induction of differentiation, the osteogenic and adipogenic differentiation of D-MSCs were aberrant compared to N-MSCs. The expression of angiogenic factors was lower in D-MSCs than N-MSCs. D-MSCs co-cultured with endothelial cells resulted in decreased tube formation compared to N-MSCs.