The influence of varying doses of streptozotocin and preventive insulin treatment on phospholipid metabolism in sciatic nerve in vitro from diabetic rats was studied. Animals were given 30, 45, and 60 mg/kg injections of streptozotocin and 10 weeks later nerves were removed and incubated in the presence of [32P]-orthophosphate. The quantity of isotope incorporated into phosphatidylinositol-4,5-bisphosphate (PIP2) was progressively greater with increasing drug dosage, whereas uptake of label into other phospholipids was unchanged. Rats were made diabetic and within 72 h were implanted with long-acting, insulin-containing osmotic minipumps and the incorporation of [32P]orthophosphate into phospholipids of intact and epineurium-free nerves was examined 8 weeks later. For whole nerve, increased labeling in nerves from diabetic animals occurred only in PIP2 and phosphatidylinositol-4-phosphate (PIP) and was completely prevented by insulin treatment. Isotope incorporation into polyphosphoinositides was also markedly elevated (greater than or equal to 100%) in desheathed diabetic nerves, but not in nerves from insulin-treated animals. Other phospholipids in epineurium-free nerves displayed some rise in isotope uptake, but the increases were not prevented by insulin treatment and appeared unrelated to hyperglycemia. Morphological examination of nerves extended previous findings that prolonged insulin treatment produces axonal degeneration. These observations indicate that abnormal nerve polyphosphoinositide metabolism is at least in part a consequence of hyperglycemia. The metabolic alterations may be intimately involved in reduced nerve conduction velocity, which is characteristic of diabetic neuropathy.