Although peripheral nerve dysfunction is the most common complication associated with diabetes mellitus, the relationship between this disorder and hyperglycemia and/or insulin deficiency is unclear. Recent electrophysiologic and morphologic studies in man and in animal models of diabetes suggested that the axon is the initial site of damage in the peripheral nerve. Shrinkage of the axons and expansion of the endoneurial space appear to precede subsequent Schwann cell disease and segmental demyelination. Numerous biochemical abnormalities have been described in the peripheral nerve that could either contribute to the etiology of peripheral neuropathy or simply be consequences thereof. Among those changes that may exert a direct toxic effect on the axon are included alterations in capillary permeability, impaired axonal flow, axonal shrinkage, and abnormal axonal myo-inositol metabolism. At present, it does not appear that the increased thickness of the capillary and Schwann cell basal laminae, the capillary endothelial proliferation, or the altered Schwann cell carbohydrate, lipid, or protein metabolism contribute directly to the pathogenesis of diabetic nerve dysfunction. These latter phenomena appear to be either epiphenomena or secondary effects of damage to the axons and Schwann cells. It is likely that the etiology of diabetic polyneuropathy is multifactorial and, with our current knowledge, it is not yet possible to determine the exact sequence of events that leads to this disorder. However, as my knowledge concerning the molecular basis for the development of diabetic polyneuropathy expands, the likelihood that I may prevent or treat this disorder by biochemical manipulations draws closer.