In the setting of type-2 diabetes, there are declines of structural stability and functionality of blood capillaries and red blood cells (RBCs), increasing the risk for microcirculatory disturbances. Correcting hyperglycemia is not entirely effective at reestablishing normal cellular metabolism and function. Therefore, identification of pathological changes occurring before the development of overt hyperglycemia may lead to novel therapeutic targets for reducing the risk of microvascular dysfunction. Here we determine whether RBC-capillary interactions are altered by prediabetic hypersecretion of amylin, an amyloid forming hormone co-synthesized with insulin, and is reversed by endothelial cell-secreted epoxyeicosatrienoic acids. In patients, we found amylin deposition in RBCs in association with type-2 diabetes, heart failure, cancer and stroke. Amylin-coated RBCs have altered shape and reduced functional (non-glycated) hemoglobin. Amylin-coated RBCs administered intravenously in control rats upregulated erythropoietin and renal arginase expression and activity. We also found that diabetic rats expressing amyloid-forming human amylin in the pancreas (the HIP rat model) have increased tissue levels of hypoxia-inducible transcription factors, compared to diabetic rats that express non-amyloid forming rat amylin (the UCD rat model). Upregulation of erythropoietin correlated with lower hematocrit in the HIP model indicating pathologic erythropoiesis. In the HIP model, pharmacological upregulation of endogenous epoxyeicosatrienoic acids protected the renal microvasculature against amylin deposition and also reduced renal accumulation of HIFs. Thus, prediabetes induces dysregulation of amylin homeostasis and promotes amylin deposition in RBCs and the microvasculature altering RBC-capillary interaction leading to activation of hypoxia signaling pathways and pathologic erythropoiesis. Hence, dysregulation of amylin homeostasis could be a therapeutic target for ameliorating diabetic vascular complications.