Diabetic nephropathy (DN) and diabetic retinopathy (DR) are major complications of type 1 and type 2 diabetes. DN and DR are mainly caused by injury to the perivascular supporting cells, the mesangial cells within the glomerulus, and the pericytes in the retina. The genes and molecular mechanisms predisposing retinal and glomerular pericytes to diabetic injury are poorly characterized. In this study, the genetic deletion of proteasome activator genes, PA28α and PA28β genes, protected the diabetic mice in the experimental STZ-induced diabetes model against renal injury and retinal microvascular injury and prolonged their survival compared with wild type STZ diabetic mice. The improved wellbeing and reduced renal damage was associated with diminished expression of Osteopontin (OPN) and Monocyte Chemoattractant Protein-1 (MCP-1) in the glomeruli of STZ-injected PA28α/PA28β double knockout (Pa28αβDKO) mice and also in cultured mesangial cells and retinal pericytes isolated from Pa28αβDKO mice that were grown in high glucose. The mesangial PA28-mediated expression of OPN under high glucose conditions was suppressed by peptides capable of inhibiting the binding of PA28 to the 20S proteasome. Collectively, our findings demonstrate that diabetic hyperglycemia promotes PA28-mediated alteration of proteasome activity in vulnerable perivascular cells resulting in microvascular injury and development of DN and DR.