Type 1 diabetes mellitus is associated with a number of disorders of skeletal health, conditions that rely, in part, on dynamic bone formation. A mouse model of distraction osteogenesis was used to study the consequences of streptozotocin-induced diabetes and insulin treatment on bone formation and osteoblastogenesis. In diabetic mice compared with control mice, new bone formation was decreased, and adipogenesis was increased in and around, respectively, the distraction gaps. Although insulin treatment restored bone formation to levels observed in nondiabetic control mice, it failed to significantly decrease adipogenesis. Molecular events altered during de novo bone formation in untreated type 1 diabetes mellitus, yet restored with insulin treatment were examined so as to clarify specific osteogenic genes that may contribute to diabetic bone disease. RNA from distraction gaps was analyzed by gene microarray and quantitative RT-PCR for osteogenic genes of interest. Runt-related transcription factor 2 (RUNX2), and several RUNX2 target genes, including matrix metalloproteinase-9, Akp2, integrin binding sialoprotein, Dmp1, Col1a2, Phex, Vdr, osteocalcin, and osterix, were all significantly down-regulated in the insulin-deficient, hyperglycemic diabetic animals; however, insulin treatment of diabetic animals significantly restored their expression. Expression of bone morphogenic protein-2, transcriptional coactivator with PDZ-binding motif, and TWIST2, all important regulators of RUNX2, were not impacted by the diabetic condition, suggesting that the defect in osteogenesis resides at the level of RUNX2 expression and its activity. Together, these data demonstrate that insulin and/or glycemic status can regulate osteogenesis in vivo, and systemic insulin therapy can, in large part, rescue the diabetic bone phenotype at the tissue and molecular level.