High blood sugar levels result in defective wound healing processes in diabetic patients. Endothelial progenitor cells (EPCs) play an important role in vasculogenesis, and thereby contribute to reconstitution of the microcirculation and healing. This study aimed to determine the possible mechanism by which the numbers of circulating EPCs are regulated in response to tissue wounding. In the streptozotocin‐induced diabetic mouse model, we found that phagocytes activated by local inflammatory cytokines in the wound interfere with the mobilization and recruitment of EPCs to the lesion area. Specifically, the activated macrophages inactivate CXCL12, the major chemokine for EPC recruitment, via matrix metalloproteinases (MMPs), and thereby prevent local chemotaxis and subsequent homing of EPCs to the wound. The wound healing process is delayed by local administration of inflammatory cytokines, and its rate is increased by MMP inhibitors. This study indicates that local inhibition of MMPs is beneficial for regeneration of damaged vessels, and may explain poor wound healing in diabetic patients, thus demonstrating its potential utility as a local treatment therapy to promote diabetic wound healing.