Astragaloside IV (AGS-IV), a new glycoside of cycloartane-type triterpene isolated from the root of Astragalus membranaceus (Fisch.) Bunge, has been used experimentally for its potent immune-stimulating, anti-inflammatory, and antioxidative actions. A recent study has shown AGS-IV to be an aldose-reductase inhibitor and a free-radical scavenger. This study examined the effects of AGS-IV on motor nerve conduction velocity (MNCV), tailflick threshold temperature, biochemical indexes, and the histology of the sural nerve after diabetes was induced in rats with 75 mg/kg streptozotocin (STZ). AGS-IV (3, 6, 12 mg/kg, twice a day) was administered by oral gavage for 12 weeks after diabetes was induced. Compared with control (nondiabetic) rats, obvious changes in physiological behaviors and a significant reduction in sciatic MNCV in diabetic rats were observed after 12 weeks of STZ administration. Morphological analysis showed that AGS-IV suppressed a decrease in myelinated fiber area, an increase in myelinated fiber density, and an increase in segmental demyelination in diabetic rats. The protective mechanism of AGS-IV involved a decrease in declining blood glucose concentration and HbA1C levels, and an increase in plasma insulin levels. AGS-IV increased the activity of glutathione peroxidase in nerves, depressed the activation of aldose reductase in erythrocytes, and decreased the accumulation of advanced glycation end products in both nerves and erythrocytes. Moreover, AGS-IV elevated Na+,K+-ATPase activity in both the nerves and erythrocytes of diabetic rats. These results indicate that AGS-IV exerts protective effects against the progression of peripheral neuropathy in STZ-induced diabetes in rats through several interrelated mechanisms.