Pathogenesis of diabetic encephalopathy (DE) is not completely understood until now. The purposes of this study were to illustrate the changes in morphology, function, and important transporters in neurons and glia during DE, as well as to reveal the potential therapeutic effects of medicines and the diet control on DE. Spontaneous obese KK-Ay mice were used to investigate diabetes-induced cognitive disorder, the morphology, function, and protein expression changes in impact animal and the cell level studies. The new drug candidate PHPB, donepezil, and low-fat food were used to observe the therapeutic effects. KK-Ay mice at 5 months of age showed typical characteristics of type 2 diabetes mellitus (T2DM） and appeared significant cognitive deficits. Morphological study showed microtubule-associated protein 2 (MAP2) expression was increased in hippocampal neurons and glial fibrillary acidic protein (GFAP) expression decreased in astrocytes. Meanwhile, the vesicular glutamate transporter 1 (vGLUT1) expression was increased and glucose transporter 1 (GLUT1) decreased, and the expression of brain-derived neurotrophic factor (BDNF) and glial cell-derived neurotrophic factor (GDNF) was also reduced in KK-Ay mice. Microglia were activated, and IL-1β and TNF-α were increased obviously in the brains of the KK-Ay mice. Most of the above changes in the KK-Ay mice at 5 months of age could be relieved by diet intervention (DR) or by treatment of donepezil or new drug candidate PHPB. KK-Ay mouse is a useful animal model for studying DE. The alterations of morphology, structure, and function of astrocyte and microglia in KK-Ay mice might be rescued by DR and by treatment of medicine. The proteins we reported in this study could be used as biomarkers and the potential drug targets for DE study and treatment. © 2019 The Authors. CNS Neuroscience & Therapeutics Published by John Wiley & Sons Ltd.