There is incomplete knowledge of the impact of bone marrow cells on the gut microbiome and gut barrier function. We postulated that diabetes mellitus and systemic ACE2 (angiotensin-converting enzyme 2) deficiency would synergize to adversely impact both the microbiome and gut barrier function. Bacterial 16S rRNA sequencing and metatranscriptomic analysis were performed on fecal samples from wild-type, ACE2-/y, Akita (type 1 diabetes mellitus), and ACE2-/y-Akita mice. Gut barrier integrity was assessed by immunofluorescence, and bone marrow cell extravasation into the small intestine was evaluated by flow cytometry. In the ACE2-/y-Akita or Akita mice, the disrupted barrier was associated with reduced levels of myeloid angiogenic cells, but no increase in inflammatory monocytes was observed within the gut parenchyma. Genomic and metatranscriptomic analysis of the microbiome of ACE2-/y-Akita mice demonstrated a marked increase in peptidoglycan-producing bacteria. When compared with control cohorts treated with saline, intraperitoneal administration of myeloid angiogenic cells significantly decreased the microbiome gene expression associated with peptidoglycan biosynthesis and restored epithelial and endothelial gut barrier integrity. Also indicative of diabetic gut barrier dysfunction, increased levels of peptidoglycan and FABP-2 (intestinal fatty acid-binding protein 2) were observed in plasma of human subjects with type 1 diabetes mellitus (n=21) and type 2 diabetes mellitus (n=23) compared with nondiabetic controls (n=23). Using human retinal endothelial cells, we determined that peptidoglycan activates a noncanonical TLR-2 (Toll-like receptor 2) associated MyD88 (myeloid differentiation primary response protein 88)-ARNO (ADP-ribosylation factor nucleotide-binding site opener)-ARF6 (ADP-ribosylation factor 6) signaling cascade, resulting in destabilization of p120-catenin and internalization of VE-cadherin as a mechanism of deleterious impact of peptidoglycan on the endothelium. We demonstrate for the first time that the defect in gut barrier function and dysbiosis in ACE2-/y-Akita mice can be favorably impacted by exogenous administration of myeloid angiogenic cells.