The metabolism of myo -inositol and its hospholipids has been studied in the sciatic nerves of control, two weeks' streptozotocin-diabetic, and insulin-treated diabetic rats. The concentrations of glucose, fructose, and sorbitol were increased and the concentration of myo -inositol was decreased in the sciatic nerves of the diabetic animals; these abnormalities were only partially corrected by insulin therapy that was adequate to obviate hyperglycemia. Whereas the space of distribution of 2-3H- myo -inositol was found to exceed the total water space of the nerves of control animals, the 2-3H- myo -inositol space approximated the water space in the nerves of diabetic animals and was only slightly increased after insulin therapy. During the first 2 h after the intraperitoneal injection of 2-3H- myo -inositol, the recovery of radioactivity in nerve lipids was decreased by 69% in the untreated diabetics and by 77% in the insulin-treated diabetics. Analysis of the individual phosphoinositides revealed a proportional increase in the radioactivity recovered with phosphatidylinositol and a decrease in the recovery with triphosphatidylinositol in the diabetic nerves. CDP-diglyceride:inositol transferase activity was decreased by 44% in homogenates of sciatic nerves from untreated diabetic rats, but it was normal in nerve homogenates from insulin-treated diabetics. The pattern of incorporation of radioactivity into phospholipids after 1 h of incubation of nerve homogenates with 2-3H- myo -inositol was similar to that observed in vivo. The fractional recovery of radioactivity with phosphatidylinositol was increased, whereas the recovery of label as triphosphatidylinositol was decreased by 11% in the presence of homogenates of sciatic nerves from diabetic rats. These observations indicate that 2 wk of acute streptozotocin diabetes results in a decrease in the sciatic nerve content and space of distribution of myo -inositol and suggests that nerve myo -inositol transport may be defective in the diabetic animal. The observed abnormalities in the amount and pattern of incorporation of 2-3H- myo -inositol into diabetic nerve phospholipids could be explained, in part, by decreased activities of CDP-diglyceride:inositol transferase and phosphatidylinositol 4-phosphate kinase activities in the diabetic nerves. However, the fact that the incorporation of 2-3H- myo -inositol into phospholipids was decreased in the nerves of insulin-treated—diabetic animals despite a normal CDP-diglyceride:inositol transferase activity suggests that defective myo -inositol transport may also contribute to the abnormal neural phosphoinositide metabolism in this model. The possibility that these abnormalities are related to the development of the structural and functional changes associated with diabetic neuropathy requires further investigation.