Diabetic nephropathy (DN) is the leading cause of end stage renal disease (ESRD). Although the pathogenesis of DN is multifactorial, local inflammatory stress may result from both the metabolic and hemodynamic derangements observed in DN. Inflammatory markers such as Interleukin-18 and Tumor Necrosis Factor (TNF)-alpha are increased in the serum of patients with diabetes and DN. This occurs at a very early stage of disease, and correlates with the degree of albuminuria. Recent data suggest that standard pharmacologic interventions for DN, such as angiotensin converting enzyme inhibitors, angiotensin receptor blockers and aldosterone antagonists, may have anti-inflammatory properties that are independent of their hemodynamic effect. Although inflammation is traditionally thought of as a process resulting in macrophage infiltration, current scientific progress has lead to the novel idea that even cells distant from the blood stream, such as podocytes, can produce cytokines and can express molecules that are part of the co-stimulatory pathway. A strong translational research effort is currently aimed at defining the role of such molecules in cells other than lymphocytes and macrophages. Experimental animal models have recently provided evidence that some acute phase markers of inflammation such as intracellular cell adhesion molecule-1 (ICAM-1), TNF-alpha and Monocytes Chemoattractant Protein-1 (MCP-1) may have a causative role in the development of DN. Here, we review the current evidence supporting the role of inflammation in the early phases of clinical and experimental DN. A complete understanding of inflammatory pathways activated in DN may lead to the discovery of earlier and more reliable markers of DN than albuminuria and the identification of novel therapeutic targets.