To assess the potential therapeutic effects of adipose tissue-derived mesenchymal stem cells (ASCs) for the treatment of type 2 diabetes (T2D), we compared the phenotype and functionality of ASCs isolated from high-fat diet and streptozotocin (STZ)-induced T2D and the leptin receptor-deficient (db/db) mice with cells from healthy C57BL/6 mice. ASCs from T2D or db/db mice showed similar expression patterns of cellular markers and abilities to differentiate into adipocytes, osteoblasts, and chondrocytes. However, the rate of proliferation was reduced. ASCs from db/db mice secreted less hepatocyte growth factor (HGF). T2D mice receiving a single intravenous injection of T2D or db/db ASCs showed increased insulin sensitivity, reduced inflammation and fat content in adipose tissue and the liver and increased pancreatic β cell mass through 5 weeks post-infusion. Our data show that, although ASCs from T2D or db/db mice had inferior proliferative capacity compared to cells from healthy controls, improved insulin sensitivity and less β cell death was seen in T2D mice receiving mesenchymal stem cell (MSC) therapy. This study offers evidence that ASCs from diabetic donors have the potential to be used for cell therapy in the treatment of insulin resistance and T2D.