Diabetic retinopathy (DR), a leading cause of vision impairment worldwide, is characterized by early neuronal damage in the retina, termed diabetic neuropathy in the retina (DNR). This condition is marked by neuronal apoptosis and glial activation. M & uuml;ller glia are retinal cells highly susceptible to diabetic metabolic stress that may undergo ferroptosis, an iron-dependent form of regulated cell death driven by lipid peroxidation. However, the role of ferroptosis in DNR pathogenesis remains undefined. In this study, we investigated M & uuml;ller cell injury under high-glucose and palmitic acid (HGP) conditions. The retinal tissues were obtained from normal rabbits and alloxan-induced diabetic rabbits. HGP exposure significantly reduced M & uuml;ller cell viability, induced cell cycle arrest, and elevated proinflammatory cytokines. Ultrastructural analysis revealed mitochondrial damage, accompanied by decreased glutathione (GSH) and increased malondialdehyde (MDA), ferrous iron (Fe2+), and reactive oxygen species (ROS) levels. RNA sequencing (RNA-Seq) identified SQSTM1 as a ferroptosis-related differentially expressed gene, which was significantly upregulated in HGP-treated cells. In vivo, DNR rabbits exhibited oxidative stress, iron dysregulation, and elevated SQSTM1 expression that colocalized with GFAP+ M & uuml;ller cells. Single-cell RNA-Seq of human proliferative diabetic retinopathy (PDR) retinas confirmed elevated SQSTM1 expression in M & uuml;ller cells compared to healthy control (HC) retinas. Mechanistically, SQSTM1 knockdown attenuated ferroptosis, oxidative stress, and HGP-induced injury, while its overexpression exacerbated ferroptosis via ACSL4 upregulation. Overall, our findings suggest that SQSTM1 may serve as a critical mediator linking M & uuml;ller cell dysfunction and ferroptosis in DNR pathogenesis, offering a novel potential therapeutic target.