Fibroblasts are a major cell population that perform critical functions in the wound healing process. In response to injury, they proliferate and migrate into the wound space, engaging in extracellular matrix (ECM) production, remodeling, and contraction. However, there is limited knowledge of how fibroblast functions are altered in diabetes. To address this gap, several state-of-the-art microscopy techniques were employed to investigate morphology, migration, ECM production, 2D traction, 3D contraction, and cell stiffness. Analysis of cell-derived matrix (CDM) revealed that diabetic fibroblasts produce thickened and less porous ECM that hindered migration of normal fibroblasts. In addition, diabetic fibroblasts were found to lose spindle-like shape, migrate slower, generate less traction force, exert limited 3D contractility, and have increased cell stiffness. These changes were due, in part, to a decreased level of active Rac1 and a lack of co-localization between F-actin and Waskott-Aldrich syndrome protein family verprolin homologous protein 2 (WAVE2). Interestingly, deletion of thrombospondin-2 (TSP2) in diabetic fibroblasts rescued these phenotypes and restored normal levels of active Rac1 and WAVE2-F-actin co-localization. These results provide a comprehensive view of the extent of diabetic fibroblast dysfunction, highlighting the regulatory role of the TSP2-Rac1-WAVE2-actin axis, and describing a new function of TSP2 in regulating cytoskeleton organization.