In diabetic patients and animal models of diabetes mellitus (DM), circulating endothelial progenitor cell (EPC) number is lower than in normoglycaemic conditions and EPC angiogenic properties are inhibited. Stromal cell derived factor-1 (SDF-1) plays a key role in bone marrow (BM) c-kit(+) stem cell mobilization into peripheral blood (PB), recruitment from PB into ischemic tissues and differentiation into endothelial cells. The aim of the present study was to examine the effect of DM in vivo and in vitro, on murine BM-derived c-kit(+) cells and on their response to SDF-1. Acute hindlimb ischemia was induced in streptozotocin-treated DM and control mice; circulating c-kit(+) cells exhibited a rapid increase followed by a return to control levels which was significantly faster in DM than in control mice. CXCR4 expression by BM c-kit(+) cells as well as SDF-1 protein levels in the plasma and in the skeletal muscle, both before and after the induction of ischemia, were similar between normoglycaemic and DM mice. However, BM-derived c-kit(+) cells from DM mice exhibited an impaired differentiation towards the endothelial phenotype in response to SDF-1; this effect was associated with diminished protein kinase phosphorylation. Interestingly, SDF-1 ability to induce differentiation of c-kit(+) cells from DM mice was restored when cells were cultured under normoglycaemic conditions whereas c-kit(+) cells from normoglycaemic mice failed to differentiate in response to SDF-1 when they were cultured in hyperglycaemic conditions. These results show that DM diminishes circulating c-kit(+) cell number following hindlimb ischemia and inhibits SDF-1-mediated AKT phosphorylation and differentiation towards the endothelial phenotype of BM-derived c-kit(+) cells.