Angiotensin-converting enzyme 2 (ACE2) is the primary enzyme of the vasoprotective axis of the renin angiotensin system (RAS). We tested the hypothesis that loss of ACE2 would exacerbate diabetic retinopathy by promoting bone marrow dysfunction. ACE2-/y were crossed with Akita mice, a model of type 1 diabetes. When comparing the bone marrow of the ACE2-/y -Akita mice to that of Akita mice, we observed a reduction of both short-term and long-term repopulating hematopoietic stem cells, a shift of hematopoiesis toward myelopoiesis, and an impairment of lineage- c-kit+ hematopoietic stem/progenitor cell (HS/PC) migration and proliferation. Migratory and proliferative dysfunction of these cells was corrected by exposure to angiotensin-1-7 (Ang-1-7), the protective peptide generated by ACE2. Over the duration of diabetes examined, ACE2 deficiency led to progressive reduction in electrical responses assessed by electroretinography and to increases in neural infarcts observed by fundus photography. Compared with Akita mice, ACE2-/y -Akita at 9-months of diabetes showed an increased number of acellular capillaries indicative of more severe diabetic retinopathy. In diabetic and control human subjects, CD34+ cells, a key bone marrow HS/PC population, were assessed for changes in mRNA levels for MAS, the receptor for Ang-1-7. Levels were highest in CD34+ cells from diabetics without retinopathy. Higher serum Ang-1-7 levels predicted protection from development of retinopathy in diabetics. Treatment with Ang-1-7 or alamandine restored the impaired migration function of CD34+ cells from subjects with retinopathy. These data support that activation of the protective RAS within HS/PCs may represents a therapeutic strategy for prevention of diabetic retinopathy. Stem Cells 2018;36:1430-1440.