Diabetes mellitus (DM) is frequently accompanied by complications, such as peripheral nerve neuropathy. Schwann cells play a pivotal role in regulating peripheral nerve function and conduction velocity; however, changes in Schwann cell differentiation status in DM are not fully understood. Here, we report that Schwann cells de-differentiate into immature cells under hyperglycemic conditions as a result of sorbitol accumulation and decreased Igf1 expression in those cells. We found that de-differentiated Schwann cells could be re-differentiated in vitro into mature cells by treatment with an aldose reductase inhibitor, to reduce sorbitol levels, or with vitamin D3, to elevate Igf1 expression. In vivo DM models exhibited significantly reduced nerve function and conduction, Schwann cell de-differentiation, peripheral nerve de-myelination, and all conditions were significantly rescued by aldose reductase inhibitor or vitamin D3 administration. These findings reveal mechanisms underlying pathological changes in Schwann cells seen in DM and suggest ways to treat neurological conditions associated with this condition.