Peripheral nerves of diabetic rats were studied 2 years after alloxan injection. We observed demyelination and remyelination, axonal degeneration and regeneration, reduplication of basal laminae around vessels and Schwann's cells, as well as onion bulb formation by proliferated Schwann's cells. Crystalline deposits composed of aggregates of fibrillary electron dense material often occurred in vessel walls and endoneurium of diabetic animals but rarely were seen in nerves from age-matched control animals. Glycogen accumulated in myelinated and unmyelinated axons within mitochondria. Axoplasmic inclusions resembling Lafora's bodies and the inclusions of glycogenosis type IV were frequent and often were accompanied by deposits of particulate glycogen. The findings suggest that the neuropathy in alloxan diabetes is caused by metabolic impairment of anxons, Schwann's cells, and vessels, leading to segmental demyelination and axonal degeneration.