Oxidative stress plays a critical role in the vascular complications of type 2 diabetes. We examined the effect of type 2 diabetes on NADPH oxidase in human vessels and explored the mechanisms of this interaction. Segments of internal mammary arteries (IMAs) with their perivascular adipose tissue (PVAT) and thoracic adipose tissue were obtained from 386 patients undergoing coronary bypass surgery (127 with type 2 diabetes). Type 2 diabetes was strongly correlated with hypoadiponectinemia and increased vascular NADPH oxidase–derived superoxide anions (O2˙−). The genetic variability of the ADIPOQ gene and circulating adiponectin (but not interleukin-6) were independent predictors of NADPH oxidase–derived O2˙−. However, adiponectin expression in PVAT was positively correlated with vascular NADPH oxidase–derived O2˙−. Recombinant adiponectin directly inhibited NADPH oxidase in human arteries ex vivo by preventing the activation/membrane translocation of Rac1 and downregulating p22phox through a phosphoinositide 3-kinase/Akt-mediated mechanism. In ex vivo coincubation models of IMA/PVAT, the activation of arterial NADPH oxidase triggered a peroxisome proliferator–activated receptor-γ–mediated upregulation of the adiponectin gene in the neighboring PVAT via the release of vascular oxidation products. We demonstrate for the first time in humans that reduced adiponectin levels in individuals with type 2 diabetes stimulates vascular NADPH oxidase, while PVAT “senses” the increased NADPH oxidase activity in the underlying vessel and responds by upregulating adiponectin gene expression. This PVAT-vessel interaction is identified as a novel therapeutic target for the prevention of vascular complications of type 2 diabetes.