Our previous research shown that tumor necrosis factor-alpha-induced protein 8 (TNFAIP8) is elevated in the plasma extracellular vesicles and vitreous humor in diabetic retinopathy (DR). TNFAIP8 also significantly increases the viability of human retinal microvascular endothelial cells (HRMECs) and promotes cell migration and tube formation in vitro. To comprehensively explore its role in DR, we investigated the effect of TNFAIP8 on DR development using an animal model in this study. A TNFAIP8-overexpressing adeno-associated virus (AAV) vector and streptozotocin-induced mouse model was used. The AAV-TNFAIP8 vector was injected into the mice intravitreally, and the effect was evaluated. The evaluation included analysis of retinal structure and function using electroretinography, optical coherence tomography, and histological assessment. The influence of TNFAIP8 on the avascular area, retinal leukostasis, and the expression levels of inflammatory factors was also determined. TNFAIP8 significantly decreased a/b-wave amplitude and retinal thickness in diabetic mice. Histological assessment showed that TNFAIP8 aggravated pathological abnormalities with distorted organization of the retina. TNFAIP8 also significantly increased the avascular area, leukostasis, and the expression of inflammatory factors, such as TNFα, IL1β, ICAM1, and GFAP, in the retina. The results of this study support the role of TNFAIP8 in DR pathogenesis. A mechanistic understanding of TNFAIP8 may offer novel therapeutic strategies.