The present epidemic of diabetes is resulting in a worldwide increase in cardiovascular and microvascular complications including retinopathy. Current thinking has focused on local influences in the retina as being responsible for development of this diabetic complication. However, the contribution of circulating cells in maintenance, repair, and dysfunction of the vasculature is now becoming appreciated. Diabetic individuals have fewer endothelial progenitor cells (EPCs) in their circulation and these cells have diminished migratory potential, which contributes to their decreased reparative capacity. Using a rat model of type 2 diabetes, we show that the decrease in EPC release from diabetic bone marrow is caused by bone marrow neuropathy and that these changes precede the development of diabetic retinopathy. In rats that had diabetes for 4 mo, we observed a dramatic reduction in the number of nerve terminal endings in the bone marrow. Denervation was accompanied by increased numbers of EPCs within the bone marrow but decreased numbers in circulation. Furthermore, denervation was accompanied by a loss of circadian release of EPCs and a marked reduction in clock gene expression in the retina and in EPCs themselves. This reduction in the circadian peak of EPC release led to diminished reparative capacity, resulting in the development of the hallmark feature of diabetic retinopathy, acellular retinal capillaries. Thus, for the first time, diabetic retinopathy is related to neuropathy of the bone marrow. This novel finding shows that bone marrow denervation represents a new therapeutic target for treatment of diabetic vascular complications. © 2009 Busik et al.