Micro- and macrovascular complications are major causes of disability and death in patients with diabetes mellitus. Functional impairment of endothelial activity precedes the development of morphological alterations during the progression of diabetes. This endothelial dysfunction results from reduced bioavailability of the vasodilator nitric oxide (NO), mainly due to accelerated NO degradation by reactive oxygen species (ROS). Although hyperglycemia, insulin resistance, hyperinsulinemia and dyslipidemia independently contribute to endothelial dysfunction via several distinct mechanisms, increased oxidative stress seems to be the first alteration triggering several others. Mechanisms proposed to explain glucose- and lipid-induced vascular alterations in diabetes include accelerated formation of advanced glycation end-products (AGEs), protein kinase C activation, inflammatory signaling and oxidative stress. Insulin resistance with impaired PI 3-kinase effects decreases insulin mediated production of NO and reduces vasodilation, capillary recruitment and antioxidant properties of endothelium. Compensatory hyperinsulinemia enhances activation of intact MAP-kinase pathways and contributes to pro-atherogenic events by increasing secretion of endothelin-1 (ET-1), stimulating expression of adhesion molecules such as VCAM-1 and E-selectin, and inducing production of ROS. Conventional therapies to reduce hyperglycemia, dyslipidemia and insulin resistance may effectively improve endothelial function and delay the onset of vascular complications. Novel therapeutic approaches designed to inhibit AGEs formation, reduce PKC activation, decrease inflammatory signals and restore the ox/redox balance of endothelium may be predicted to ameliorate vascular function in diabetic state. This review summarizes the current knowledge on the most important mechanisms involved in endothelial dysfunction during diabetes. In addition, novel therapeutic strategies that may result from recently identified targets are also described.