Diabetes is a metabolic disorder caused by insulin resistance and/or deficiency and impairs bone quality and bone healing due to altered gene expression, reduced vascularization, and prolonged inflammation. No effective treatments for diabetic bone healing are currently available, and most existing treatments do not directly address the diabetic complications that impair bone healing. We recently demonstrated that sustained and localized delivery of salicylic acid (SA) via an SA-based polymer provides a low-cost approach to enhance diabetic bone regeneration. Herein, we report mechanistic studies that delve into the biological action and local pharmacokinetics of SA-releasing polymers shown to enhance diabetic bone regeneration. The results suggest that low SA concentrations were locally maintained at the bone defect site for more than 1 month. As a result of the sustained SA release, a significantly reduced inflammation was observed in diabetic animals, which in turn, yielded reduced osteoclast density and activity, as well as increased osteoblastogenesis. Based upon these results, localized and sustained SA delivery from the SA-based polymer effectively improved bone regeneration in diabetic animals by affecting both osteoclasts and osteoblasts, thereby providing a positive basis for clinical treatments. © 2016 Wiley Periodicals, Inc. J Biomed Mater Res Part A: 104A: 2595-2603, 2016.