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Type 2 diabetes mellitus (T2DM) is a chronic disorder associated with obesity and hyperglycemia. T2DM is linked to significant clinical complications such as delayed wound healing and diabetic foot ulcers. Tumor necrosis factor-stimulated gene 6 (TSG-6) is a protein with multiple functions including regulation of cytokine binding to glycosaminoglycans in extracellular matrices and on vascular endothelial walls. Loss of TSG-6 in knockout mice increases skin inflammation and delays wound healing. Here, in both a genetic model (db/db mice) and a dietary model that simulates human T2DM (mice treated with a high-fat diet [HFD] and streptozotocin [STZ]), we observed sustained hyperglycemia and a reproducible delay in wound closure. TSG-6 expression was markedly reduced in diabetic skin in these models, both before injury and post wounding. HFD+STZ diabetic mouse wounds showed elevated levels of pro-inflammatory cytokines (IL-6, TNF-α, and MIP-1α) and lower levels of the anti-inflammatory cytokine IL-10, relative to normoglycemic mice. Re-introduction of TSG-6 protein into the wounds normalized healing rates, corrected abnormal cytokine expression levels, and increased macrophage accumulation in dermal and adipose compartments. Thus, T2DM is associated with reduced levels of TSG-6 in diabetic skin, which contributes to the pro-inflammatory milieu and the delay in wound closure.