Diabetic encephalopathy (DE) is a severe complication that occurs in the central nervous system (CNS) and leads to cognitive impairment. DE involves various pathophysiological processes, and its pathogenesis is still unclear. This review summarised current research on the pathogenesis of diabetic encephalopathy, which involves neuroinflammation, oxidative stress, iron homoeostasis, blood-brain barrier disruption, altered gut microbiota, insulin resistance, etc. Among these pathological mechanisms, neuroinflammation has been focused on. This paper summarises some of the molecular mechanisms involved in neuroinflammation, including the Mammalian Target of Rapamycin (mTOR), Lipocalin-2 (LCN-2), Pyroptosis, Advanced Glycosylation End Products (AGEs), and some common pro-inflammatory factors. In addition, we discuss recent advances in the study of potential therapeutic targets for the treatment of DE against neuroinflammation. The current research on the pathogenesis of DE is progressing slowly, and more research is needed in the future. Further study of neuroinflammation as a mechanism is conducive to the discovery of more effective treatments for DE in the future.