Impaired wound healing in diabetic patients is the leading cause of diabetes‐associated hospitalizations and approximately 50% of lower limb amputations. This is due to multiple factors, including elevated glucose, sustained hypoxia, and cell dysfunction. Previously, diabetic wounds were found to contain excessive levels of the matricellular protein thrombospondin‐2 (TSP2) and genetic ablation of TSP2 in diabetic mice or treatment of wounds with a hydrogel derived from TSP2‐null mouse skin improved healing. Previously, TSP2 has been shown to be repressed by hypoxia, but in the present study we observed sustained hypoxia and overlapping TSP2 deposition in diabetic wounds. We determined this observation was due to the insufficient HIF‐1α activation verified by western blot and immunofluorescent analysis of wound tissues and in vitro hypoxia experiments. Application of Dimethyloxalylglycine (DMOG), which can stabilize HIF‐1α, inhibited TSP2 expression in diabetic fibroblasts in hypoxic conditions. Therefore, we prepared DMOG‐containing TSP2KO hydrogel and applied it to the wounds of diabetic mice. In comparison to empty TSP2KO hydrogel or DMOG treatment, we observed improved wound healing associated with a reduction of TSP2, reduced hypoxia, and increased neovascularization. Overall, our findings shed light on the intricate interplay between hyperglycemia, hypoxia, and TSP2 in the complex environment of diabetic wounds.