Increase in endothelial cell sloughing and diminished function of endothelial stem cell progenitors in diabetic subjects are well known phenomena. We hypothesized that transplantation of bone marrow stem cells (BMSCs) including mesenchymal stem cells but not limited to CD34(+) stem cells into type 2 diabetic ob mice would restore insulin sensitivity and glucose tolerance. This approach, when combined with induction of HO-1 (a cytoprotective antioxidant system) in the recipient, would further improve bone marrow function. Sublethally irradiated ob mice received BMSC or CD34(+) stem cells from B129SF2/J mice (genetically related) via i.v. or intra bone marrow-bone marrow transplantation (IBM-BMT) at a dose of 5 x 10(6) cells. CD34(+) i.v. administration to ob mice modestly improved glucose tolerance, whereas BMSC administered by the IBM-BMT significantly increased BMSC function, serum adiponectin and glucose tolerance. Induction of HO-1 in the recipients greatly enhanced the ability of BMSC to prevent diabetes. These findings suggest that transplantation of BMSC-mesenchymal stem cells via IBM-BMT in conjunction with induction of HO-1 can eradicate type 2 diabetes. The beneficial effect of HO-1 induction further suggests that the abnormality in endothelial progenitor cells is due to mesenchymal stem cell-stromal cell disorder exacerbated by oxidative stress and decreases in adiponectin. Thus, transplantation of BMSC using the IBM-BMT strategy in conjunction with HO-1 induction offers a novel approach for the treatment of type 2 diabetes.