Diego is Spanish for James. There is a little controversy about the origin, but James is is. The book of the Bible known as James is Santiago (simply Saint James), which has become a Spanish name in itself. So technically, the cities Santiago, Chile, and San Diego, California, have the same name, meaning (St. James), though San Diego is named after Franciscan priest Diego de Alcala, according to Wiki.
The word Diego which is a popular first and last name means "he who supplants". It is believed to be equivalent to the name "James" in English and is believed to have originated in Hebrew. The related name Santiago also shares the same meaning as Diego.
The name Diego and James are believed to have both evolved from the Hebrew name "you'akov". You'akov finds mention in the bible and is the name of grandson of Abraham. In modern Bibles in both English and Spanish this name is translated as Jacob. You'akov is supposed to have meant "may he protect" in Hebrew and as it passed from the Greek to the Latin and then on to English and Spanish it is believed to have changed thus.
According to various theories by scholars of Etymology, Diego can be James, Jacob, Jim or Jake in English while James could translate to anything from Diego to Santiago with Jacobo and Iago in-between in Spanish.
Diego basically is a Spanish name and originates from the Hebrew name Jacob through the Spanish name "Santiago", initially applied to address Saint James the Great, who was the brother of John the Apostle. The meaning of the name is "he who supplants".
Variants of the name comprise of Santiago, Sandiego, and even their "saint-less" versions Tiago, Thiago and Diago. In the present day world Diego and Santiago are widespread given names, where as Santiago and Sandiego are also often seen as surnames. The names Tiago, Thiago, Diago, and Diogo often occur in the Portuguese language.
The name Diego is also well-known in the Spanish speaking courtiers, as well as in Italy. Some of the well known people of share the name Diego are, Diego Canchola, Diego Maradona, Diego Garcia, etc.