Effective treatment of diabetic neuropathy (DN) remains unsolved. We serendipitously observed dramatic relief of pain in several patients with painful DN receiving granulocyte-colony stimulating factor (G-CSF). The aim of this study was to determine if G-CSF could treat DN in an animal model and to ascertain its mechanism of action. In a rodent model of DN, G-CSF dramatically recovered nerve function, retarded histological nerve changes and increased the expression of neurotrophic factors within nerve. A sex-mismatched bone marrow transplantation (BMT) study revealed that G-CSF treatment increased the abundance of bone marrow (BM)-derived cells in nerves damaged by DN. However, we did not observe evidence of transdifferentiation or cell fusion of BM-derived cells. The beneficial effects of G-CSF were dependent on the integrity of BM. In conclusion, G-CSF produced a therapeutic effect in a rodent model of DN, which was attributed, at least in part, to the actions of BM-derived cells.