Diabetic peripheral neuropathy (DPN) is characterized by myelin abnormalities; however, the molecular mechanisms underlying such deficits remain obscure. To uncover the effects of diabetes on myelin alterations, we have analyzed myelin composition. In a streptozotocin-treated rat model of diabetic neuropathy, analysis of sciatic nerve myelin lipids revealed that diabetes alters myelin's phospholipid, FA, and cholesterol content in a pattern that can modify membrane fluidity. Reduced expression of relevant genes in the FA biosynthetic pathway and decreased levels of the transcriptionally active form of the lipogenic factor sterol-regulatory element binding factor-1c (SREBF-1c) were found in diabetic sciatic nerve. Expression of myelin's major protein, myelin protein zero (P0), was also suppressed by diabetes. In addition, we confirmed that diabetes induces sciatic nerve myelin abnormalities, primarily infoldings that have previously been associated with altered membrane fluidity. In a diabetic setting, synthetic activator of the nuclear receptor liver X receptor (LXR) increased SREBF-1c function and restored myelin lipid species and P0 expression levels to normal. These LXR-modulated improvements were associated with restored myelin structure in sciatic nerve and enhanced performance in functional tests such as thermal nociceptive threshold and nerve conduction velocity. These findings demonstrate an important role for the LXR-SREBF-1c axis in protection from diabetes-induced myelin abnormalities.