Diabetic polyneuropathy (DPN) is a common complication in diabetes. At present, there is no adequate treatment, and DPN is often debilitating for patients. It is a heterogeneous disorder and differs in type 1 and type 2 diabetes. An important underlying factor in type 1 DPN is insulin deficiency. Proinsulin C-peptide is a critical element in the cascade of events. In this review, we describe the physiological role of C-peptide and how it provides an insulin-like signaling function. Such effects translate into beneficial outcomes in early metabolic perturbations of neural Na+/K+-ATPase and nitric oxide (NO) with subsequent preventive effects on early nerve dysfunction. Further corrective consequences resulting from this signaling cascade have beneficial effects on gene regulation of early gene responses, neurotrophic factors, their receptors, and the insulin receptor itself. This may lead to preventive and corrective results to nerve fiber degeneration and loss, as well as, promotion of nerve fiber regeneration with respect to sensory somatic fibers and small nociceptive nerve fibers. A characteristic abnormality of type 1 DPN is nodal and paranodal degeneration with severe consequences for myelinated fiber function. This review deals in detail with the underlying insulin-deficiency-related molecular changes and their correction by C-peptide. Based on these observations, it is evident that continuous maintenance of insulin-like actions by C-peptide is needed in peripheral nerve to minimize the sequences of metabolic and molecular abnormalities, thereby ameliorating neuropathic complications. There is now ample evidence demonstrating that C-peptide replacement in type 1 diabetes promotes insulin action and signaling activities in a more enhanced, prolonged, and continuous fashion than does insulin alone. It is therefore necessary to replace C-peptide to physiological levels in diabetic patients. This will have substantial beneficial effects on type 1 DPN.