We examined the role of vascular function and inflammation in the development and failure to heal diabetic foot ulcers (DFUs). We followed 104 diabetic patients for a period of 18.4 ± 10.8 months. At the beginning of the study, we evaluated vascular reactivity and serum inflammatory cytokines and growth factors. DFUs developed in 30 (29%) patients. DFU patients had more severe neuropathy, higher white blood cell count, and lower endothelium-dependent and -independent vasodilation in the macrocirculation. Complete ulcer healing was achieved in 16 (53%) patients, whereas 13 (47%) patients did not heal. There were no differences in the above parameters between the two groups, but patients whose ulcers failed to heal had higher tumor necrosis factor-α, monocyte chemoattractant protein-1, matrix metallopeptidase 9 (MMP-9), and fibroblast growth factor 2 serum levels when compared with those who healed. Skin biopsy analysis showed that compared with control subjects, diabetic patients had increased immune cell infiltration, expression of MMP-9, and protein tyrosine phosphatase-1B (PTP1B), which negatively regulates the signaling of insulin, leptin, and growth factors. We conclude that increased inflammation, expression of MMP-9, PTP1B, and aberrant growth factor levels are the main factors associated with failure to heal DFUs. Targeting these factors may prove helpful in the management of DFUs.