Aim: To xplore the mechanism of diabetic encephalopathy and to observe the effects shenwu capsule on the learning and memory function of ischemic rats with diabetes mellitus(DM). Methods: The diabetic encephalopathy models of rats were established by intraperitoneal injection of 60 mg/kg streptozotocin(STZ) followed by transient bilateral carotid artery occlusion. Thirty days after treatment of small[0.45 g/kg per day], moderate[0.9 g/kg per day] and[1.8 g/kg per day] large dosage of shenwu capsule respectively, animal ethology was assessed by means of Morris water maze test. Results: The swimming time until the rats arrived platform was prolonged by 63.4% in the model rats as compared with the normal rats. Compared with the model rats, the swimming time was significantly shortened by 61.3% in the small dosage group and 75.3% in the moderate dosage group (F = 3.71, P < 0.01). As the cognitive function was improved and the level of blood sugar was decreased, the body mass of rats in the small and moderate dosage groups was remarkably reduced. The levels of blood sugar were reduced by 19. 2% and 15.1% in the two groups mentioned above both with significant difference(t = 2.13, 2.14, P < 0.05). Conclusion: Cognitive dysfunction exists in the ischemic DM rats, and the pathogenesis of diabetic encephalopathy is related with the level of blood sugar. However, shenwu capsule can improve the learning and memory function and lower the level of blood sugar in the ischemic DM rats.