Human induced pluripotent stem cells (hiPSCs) were differentiated into a specific mesoderm subset characterized by KDR+CD56+APLNR+ (KNA+) expression. KNA+ cells had high clonal proliferative potential and specification into endothelial colony-forming cell (ECFCs) phenotype. KNA+ cells differentiated into perfused blood vessels when implanted subcutaneously into the flank of nonobese diabetic/severe combined immunodeficient mice and when injected into the vitreous of type 2 diabetic mice (db/db mice). Transcriptomic analysis showed that differentiation of hiPSCs derived from diabetics into KNA+ cells was sufficient to change baseline differences in gene expression caused by the diabetic status and reprogram diabetic cells to a pattern similar to KNA+ cells derived from nondiabetic hiPSCs. Proteomic array studies performed on retinas of db/db mice injected with either control or diabetic donor-derived KNA+ cells showed correction of aberrant signaling in db/db retinas toward normal healthy retina. These data provide "proof of principle" that KNA+ cells restore perfusion and correct vascular dysfunction in db/db mice.