Diabetic wounds have limited effective therapies to restore tissue repair and resolve excessive inflammation. This study aimed to identify mechanisms of diabetic wound healing defects and test a therapeutic intervention using diabetic mouse and pig models. Here, we show that Smad7 transgene expression in mouse epidermis promotes wound healing in diabetic mice. To restrict the therapeutic effects of Smad7 on wounds, we develop a Smad7-based biologic (Tat-PYC-Smad7) that penetrates cells of the wound. Topical Tat-PYC-Smad7 treatment to diabetic pig and mouse wounds accelerates healing. Tat-PYC-Smad7-treated wounds exhibit reduced TGFβ/NFκB signaling, faster re-epithelialization, and better extracellular matrix remodeling compared to vehicle controls. Tat-PYC-Smad7 also attenuates neutrophil extracellular trap (NET) formation, potentially acting through reductions in MPO enzymatic activity and MPO nuclear entry, consequently reducing chromatin decondensation and the release of NET components. Our study reveals that keratinocytes and neutrophils are the two major cell types targeted by Tat-PYC-Smad7 to promote diabetic wound healing, providing insight into mechanisms of diabetic wound healing defects targetable by Smad7-based therapy.