Diabetic skin ulcers represent a challenging clinical problem with mechanisms not fully understood. In this study, we investigated the role and mechanism for the primary unfolded protein response (UPR) transducer inositol-requiring enzyme 1 (IRE1α) in diabetic wound healing. Bone marrow–derived progenitor cells (BMPCs) were isolated from adult male type 2 diabetic and their littermate control mice. In diabetic BMPCs, IRE1α protein expression and phosphorylation were repressed. The impaired diabetic BMPC angiogenic function was rescued by adenovirus-mediated expression of IRE1α but not by the RNase-inactive IRE1α or the activated X-box binding protein 1 (XBP1), the canonical IRE1α target. In fact, IRE1α RNase processes a subset of microRNAs (miRs), including miR-466 and miR-200 families, through which IRE1α plays an important role in maintaining BMPC function under the diabetic condition. IRE1α attenuated maturation of miR-466 and miR-200 family members at precursor miR levels through the regulated IRE1α-dependent decay (RIDD) independent of XBP1. IRE1α deficiency in diabetes resulted in a burst of functional miRs from miR-466 and miR-200 families, which directly target and repress the mRNA encoding the angiogenic factor angiopoietin 1 (ANGPT1), leading to decreased ANGPT1 expression and disrupted angiogenesis. Importantly, cell therapies using IRE1α-expressing BMPCs or direct IRE1α gene transfer significantly accelerated cutaneous wound healing in diabetic mice through facilitating angiogenesis. In conclusion, our studies revealed a novel mechanistic basis for rescuing angiogenesis and tissue repair in diabetic wound treatments.