BACKGROUND: Transcription factor specificity protein (SP2) regulates various cellular functions, including cell division, proliferation, invasion, metastasis, differentiation, and death; however, its role has not been studied in prominent medical conditions including diabetic encephalopathy (DE). Therefore, this study addressed its physiological function in the context of DE to also better characterize its possible use in the context of predictive, preventive, and personalized medicine (PPPM). METHODS: The anti-inflammatory and anti-DE actions of SP2 were investigated using three animal models (SP2(-/-) mice, streptozocin-treated mice, and db/db mice) and two cell lines (primary cultured hippocampal neurons and N2A cells). The db/db mice were a leptin deficiency model often used to study type 2 diabetes. An equal number of males and females (8-12 weeks of age) was selected. Behavioral changes in mice were determined using both morris water maze (MWM) test and Y-maze (YM) test. The alterations in oxidative stress and inflammation were examined via immunofluorescence assay, flow cytometry, co-immunoprecipitation, and immunoblotting. RESULTS: Mechanistically, SP2-knockout (SP2(-/-)) mice showed dysregulation of insulin/glucose homeostasis, neuroinflammation, and cognitive loss. Otherwise, in db/db DE mice and STZ-induced DE mice, neuroinflammation, neuroapoptosis, and cognitive decline were significantly attenuated when SP2 was overexpressed in the brain. On the other hand, SP2 overexpression activates the insulin signaling pathway and improves insulin resistance via targeting X-box binding protein 1 (XBP1) in neurons. Moreover, SP2 overexpression significantly reduces oxidative stress by interacting with XBP1 and nuclear factor erythroid 2-related factor 2 (NRF2) in neurons. Furthermore, SP2 enhances the suppression of inflammatory response triggered by nuclear factor kappa B (NFκB) through the recruitment of XBP1 and NRF2 and by the in vitro inactivation of IκB kinase (IKK) complex. CONCLUSIONS: These findings highlight SP2 as key biological targets for DE and reveal the infammation-related potential molecular mechanism of DE, which is helpful for early risk prediction and targeted prevention of DE. In conclusion, our study provides a new perspective for developing a PPPM method for managing DE patients. SUPPLEMENTARY INFORMATION: The online version contains supplementary material available at 10.1007/s13167-024-00394-0.