Impaired angiogenesis and endothelial dysfunction in type 2 diabetes constitute dominant risk factors for non-healing wounds and most forms of cardiovascular disease. We propose that diabetes shifts the 'angiogenic balance' in favor of an excessive anti-angiogenic phenotype. Herein, we report that diabetes impairs in vivo sponge angiogenic capacity by decreasing VEGF expression and 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 from diabetic SIECs demonstrated a marked upregulation in cAMP-PKA-CREB signaling, possibly stemming from increased expression of adenylyl cyclase isoforms 3 and 8, and decreased expression of PDE3. Mechanistically, we found that oxidative stress and PKA activation in diabetes enhanced CREM/ICER expression. This reduces IRS2 cellular content by inhibiting cAMP response element (CRE) transcriptional activity. Consequently, a decrease in the activity of AktmTOR ensued with a concomitant reduction in the total and nuclear protein levels of HIF-1α. Limiting HIF-1α availability for the specific hypoxia response elements 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 pro-angiogenic properties, including cell proliferation, migration and tube formation. A genetic-based strategy in diabetic SIECs using siRNAs against CREM/ICER significantly augmented the PKA-dependent VEGF expression. To this end, the current data identify the importance 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 could also point to CREM/ICER as a potential therapeutic target in the treatment of pathological angiogenesis.