The receptor for advanced glycation end products (RAGE) has been implicated in the pathogenesis of numerous complications of diabetes. We assessed the effect of a novel RAGE fusion protein inhibitor on retinal histopathology and nerve function, and on retinal inflammation and oxidative stress. C57BL/6J mice were made diabetic with streptozotocin, and some were given a RAGE fusion protein (10, 100, or 300 µg per mouse 3 times per week). Mice were sacrificed at 2 months and 10 months into the study to assess retinal vascular histopathology, accumulation of albumin in the neural retina, cell loss in the ganglion cell layer, and biochemical and physiologic abnormalities in the retina. Tactile allodynia (light touch) was measured on a paw of each animal at 2 months. Leukostasis, expression of the intercellular adhesion molecule-1 (ICAM-1), accumulation of albumin in the neural retina, and nitration of retinal proteins were significantly increased in the retinas of mice diabetic for 2 months. The number of degenerate retinal capillaries was significantly increased in mice diabetic for 10 months, compared to the nondiabetic controls. Diabetes also enhanced sensitivity of peripheral nerves to tactile allodynia. All three doses of the RAGE fusion protein inhibited capillary degeneration, accumulation of albumin in the neural retina, nitration of retinal proteins, and tactile allodynia, demonstrating that biologically meaningful levels of the drug reached the retina. RAGE inhibition did tend to inhibit diabetes-induced retinal leukostasis and ICAM-1 expression (previously postulated to be important in the pathogenesis of retinopathy), but these effects were not statistically significant for the use of the lower doses of the drug that normalized the vascular histopathology. Inhibition of RAGE blocked the development of important lesions of diabetic retinopathy, but these beneficial effects seemed not to be mediated via leukostasis. RAGE inhibition also blocked the development of sensory allodynia in diabetes. RAGE is an important therapeutic target to inhibit the development of vascular and neural complications of diabetes.