Abstract Impaired angiogenesis and endothelial dysfunction in type 2 diabetes constitute a dominant risk factor for non-healing wounds and most forms of cardiovascular disease. We propose that diabetes shifts the “angiogenic balance” in favor of excessive antiangiogenic phenotype. Herein, we report that diabetes impairs in vivo sponge angiogenic capacity by decreasing VEGF expression/fibrovascular invasion and reciprocally enhances the formation of angiostatic molecules such as thrombospondins, NFκB and FasL. Defective in vivo angiogenesis prompted cellular studies in cultured endothelial cells derived from subcutaneous sponge implants (SIECs) of control and Goto-Kakizaki rats. Ensuing data in diabetic SIECs, demonstrated a marked up-regulation in cAMP-PKA-CREB signaling, possibly stemming from increased and decreased expression of adenylyl cyclase isoforms 3/8 and PDE3, respectively. Mechanistically, we found that oxidative stress and PKA activation in diabetes enhanced CREM/ICERs expression. This reduces IRS2 cellular content by inhibiting CRE transcriptional activity. Consequently, a decrease in the activity of Akt-mTOR is ensued with a concomitant reduction in total and nuclear protein levels of HIF-1α. Limiting HIF-1α availability for the specific HREs in diabetic SIECs elicited a marked reduction in VEGF expression, both at the mRNA and protein levels. These molecular abnormalities were illustrated functionally by a defect in various proangiogenic properties including cell proliferation, migration and tube formation. A genetic-based strategy in diabetic SIECs using CREM/ICER siRNA significantly augmented the PKA-dependent VEGF expression. To this end, the current data identify the criticality of CREM/ICER as a negative regulator of endothelial function and establish a link between CREM/ICER overexpression and impaired angiogenesis during the course of diabetes. Moreover, it may also offer CREM/ICERs as a potential therapeutic target in the treatment of pathological angiogenesis in diseases such as diabetes and cancer.