Type 2 Diabetes (T2D) is an important cause of renal dysfunction and the most common cause of end-stage renal disease (ESRD). Diabetic nephropathy is also associated with an increased risk of vascular disease and patient mortality. Aggressive management of hypertension to reduce microalbuminuria, together with tight glycaemic control are important therapeutic strategies for renal and vascular disease prevention in T2D. The main pathophysiological mechanisms associated with diabetic nephropathy result from activation of the renin-angiotensin-aldosterone system (RAAS), protein kinase C pathway, pro-inflammatory cytokines and various growth factors. Angiotensin II and transforming growth factor- beta (TGF-β) are two important molecular mediators. The production of advanced glycation end-products (AGEs) and increased oxidative stress further exacerbates renal injury. These molecular changes within the renal tissue result in mesangial expansion, increased extracellular matrix deposition and an alteration in podocyte structure and function. Therapeutic targeting of these molecular pathways is an important area of translational research in diabetes. The elucidation of new genetic associations and proteomic biomarkers of diabetic kidney disease will also assist in the identification and treatment of high-risk patients. This review article will discuss both the molecular and clinical aspects of diabetic nephropathy, providing a bench-to-bedside research perspective to potential new therapeutic strategies.