A methodology that applies hyperspectral imaging (HSI) on ophthalmoscope images to identify diabetic retinopathy (DR) stage is demonstrated. First, an algorithm for HSI image analysis is applied to the average reflectance spectra of simulated arteries and veins in ophthalmoscope images. Second, the average simulated spectra are categorized by using a principal component analysis (PCA) score plot. Third, Beer-Lambert law is applied to calculate vessel oxygen saturation in the ophthalmoscope images, and oxygenation maps are obtained. The average reflectance spectra and PCA results indicate that average reflectance changes with the deterioration of DR. The G-channel gradually decreases because of vascular disease, whereas the R-channel gradually increases with oxygen saturation in the vessels. As DR deteriorates, the oxygen utilization of retinal tissues gradually decreases, and thus oxygen saturation in the veins gradually increases. The sensitivity of diagnosis is based on the severity of retinopathy due to diabetes. Normal, background DR (BDR), pre-proliferative DR (PPDR), and proliferative DR (PDR) are arranged in order of 90.00%, 81.13%, 87.75%, and 93.75%, respectively; the accuracy is 90%, 86%, 86%, 90%, respectively. The F1-scores are 90% (Normal), 83.49% (BDR), 86.86% (PPDR), and 91.83% (PDR), and the accuracy rates are 95%, 91.5%, 93.5%, and 96%, respectively.