Bone fractures are a major cause of morbidity and mortality, particularly in patients with diabetes, who have a high incidence of fractures and exhibit poor fracture healing. Coordinated expression of osteoblast-derived vascular endothelial growth factor (VEGF) and bone morphogenic proteins (BMPs) is essential for fracture repair. The NO/cGMP/protein kinase G (PKG) signaling pathway mediates osteoblast responses to estrogens and mechanical stimulation, but the pathway's role in bone regeneration is unknown. Here, we used a mouse cortical-defect model to simulate bone fractures and studied osteoblast-specific PKG1-knockout and diabetic mice. The knockout mice had normal bone microarchitecture but after injury exhibited poor bone regeneration, with decreased osteoblasts, collagen deposition, and microvessels in the bone defect area. Primary osteoblasts and tibiae from the knockout mice expressed low amounts of Vegfa and Bmp2/4 mRNAs, and PKG1 was required for cGMP-stimulated expression of these genes. Diabetic mice also demonstrated low Vegfa and Bmp2/4 expression in bone and impaired bone regeneration after injury; notably, the cGMP-elevating agent cinaciguat restored Vegfa and BMP2/4 expression and full bone healing. We conclude that PKG1 is a key orchestrator of VEGF and BMP signaling during bone regeneration and propose pharmacological PKG activation as a novel therapeutic approach to enhance fracture healing.