BACKGROUND: Type 2 diabetes is an endocrine disorder characterized by compromised insulin sensitivity that eventually leads to overt disease. Adipose stem cells (ASCs) showed promising potency in improving type 2 diabetes and its complications through their immunomodulatory and differentiation capabilities. However, the hyperglycaemia of the diabetic microenvironment may exert a detrimental effect on the functionality of ASCs. Herein, we investigate ASC homeostasis and regenerative potential in the diabetic milieu. METHODS: We conducted data collection and functional enrichment analysis to investigate the differential gene expression profile of MSCs in the diabetic microenvironment. Next, ASCs were cultured in a medium containing diabetic serum (DS) or normal non-diabetic serum (NS) for six days and one-month periods. Proteomic analysis was carried out, and ASCs were then evaluated for apoptosis, changes in the expression of surface markers and DNA repair genes, intracellular oxidative stress, and differentiation capacity. The crosstalk between the ASCs and the diabetic microenvironment was determined by the expression of pro and anti-inflammatory cytokines and cytokine receptors. RESULTS: The enrichment of MSCs differentially expressed genes in diabetes points to an alteration in oxidative stress regulating pathways in MSCs. Next, proteomic analysis of ASCs in DS revealed differentially expressed proteins that are related to enhanced cellular apoptosis, DNA damage and oxidative stress, altered immunomodulatory and differentiation potential. Our experiments confirmed these data and showed that ASCs cultured in DS suffered apoptosis, intracellular oxidative stress, and defective DNA repair. Under diabetic conditions, ASCs also showed compromised osteogenic, adipogenic, and angiogenic differentiation capacities. Both pro- and anti-inflammatory cytokine expression were significantly altered by culture of ASCs in DS denoting defective immunomodulatory potential. Interestingly, ASCs showed induction of antioxidative stress genes and proteins such as SIRT1, TERF1, Clusterin and PKM2. CONCLUSION: We propose that this deterioration in the regenerative function of ASCs is partially mediated by the induced oxidative stress and the diabetic inflammatory milieu. The induction of antioxidative stress factors in ASCs may indicate an adaptation mechanism to the increased oxidative stress in the diabetic microenvironment.