We have recently demonstrated that prosaposin is a neurotrophic and myelinotrophic factor with the active trophic sequence located at the N-terminal region of the saposin C domain. There are also reports that prosaposin mRNA is increased distal to a physical nerve injury and that exogenous prosaposin treatment induces subsequent neuronal sprouting, suggesting involvement in repair processes. In the present study, we show that prosaposin mRNA is significantly (p < 0.05) elevated in the peripheral nerve of streptozotocin-diabetic rats, a model of insulin-deficient diabetes in which nerve injury arises from the metabolic trauma of hyperglycemia and its consequences. A 14 amino acid peptide derived from the neurotrophic region of prosaposin prevented the development of deficits in both large and small fiber function caused by diabetes in rats. The dose-dependent prevention of nerve conduction slowing by TX 14(A) was accompanied by preservation of axonal caliber and sodium-potassium ATPase activity, while prevention of thermal hypoalgesia was associated with attenuation of the decline in nerve substance P levels. It is concluded that nerve subject to the metabolic injury of uncontrolled diabetes responds by increasing prosaposin gene expression, and that prosaposin-derived neurotrophic peptides may provide a novel therapeutic approach to treatment of diabetic and other peripheral neuropathies.