Bone loss and fractures are underrecognized complications of type 1 diabetes and are primarily due to impaired bone formation by osteoblasts. The mechanisms leading to osteoblast dysfunction in diabetes are incompletely understood, but insulin deficiency, poor glycemic control, and hyperglycemia-induced oxidative stress likely contribute. Here we show that insulin promotes osteoblast proliferation and survival via the nitric oxide (NO)/cyclic guanosine monophosphate (cGMP)/protein kinase G (PKG) signal transduction pathway and that PKG stimulation of Akt provides a positive feedback loop. In osteoblasts exposed to high glucose, NO/cGMP/PKG signaling was reduced due in part to the addition of O-linked N-acetylglucosamine to NO synthase-3, oxidative inhibition of guanylate cyclase activity, and suppression of PKG transcription. Cinaciguat—an NO-independent activator of oxidized guanylate cyclase—increased cGMP synthesis under diabetic conditions and restored proliferation, differentiation, and survival of osteoblasts. Cinaciguat increased trabecular and cortical bone in mice with type 1 diabetes by improving bone formation and osteocyte survival. In bones from diabetic mice and in osteoblasts exposed to high glucose, cinaciguat reduced oxidative stress via PKG-dependent induction of antioxidant genes and downregulation of excess NADPH oxidase-4–dependent H₂O₂ production. These results suggest that cGMP-elevating agents could be used as an adjunct treatment for diabetes-associated osteoporosis.