In patients with diabetes, nerve injury is a common complication that leads to chronic pain, numbness and substantial loss of quality of life. Good glycemic control can decrease the incidence of diabetic neuropathy, but more than half of all patients with diabetes still develop this complication. There is no approved treatment to prevent or halt diabetic neuropathy, and only symptomatic pain therapies, with variable efficacy, are available. New insights into the mechanisms leading to the development of diabetic neuropathy continue to point to systemic and cellular imbalances in metabolites of glucose and lipids. In the PNS, sensory neurons, Schwann cells and the microvascular endothelium are vulnerable to oxidative and inflammatory stress in the presence of these altered metabolic substrates. This Review discusses the emerging cellular mechanisms that are activated in the diabetic milieu of hyperglycemia, dyslipidemia and impaired insulin signaling. We highlight the pathways to cellular injury, thereby identifying promising therapeutic targets, including mitochondrial function and inflammation.