Diabetic nephropathy (DN) is characterized by increased macrophage infiltration, and proinflammatory M1 macrophages contribute to development of DN. Previous studies by us and others have reported that macrophage cyclooxygenase-2 (COX-2) plays a role in polarization and maintenance of a macrophage tissue-reparative M2 phenotype. We examined the effects of macrophage COX-2 on development of DN in type 1 diabetes. Cultured macrophages with COX-2 deletion exhibited an M1 phenotype, as demonstrated by higher inducible nitric oxide synthase and nuclear factor-κB levels but lower interleukin-4 receptor-α levels. Compared with corresponding wild-type diabetic mice, mice with COX-2 deletion in hematopoietic cells (COX-2 knockout bone marrow transplantation) or macrophages (CD11b-Cre COX2^f/f) developed severe DN, as indicated by increased albuminuria, fibrosis, and renal infiltration of T cells, neutrophils, and macrophages. Although diabetic kidneys with macrophage COX-2 deletion had more macrophage infiltration, they had fewer renal M2 macrophages. Diabetic kidneys with macrophage COX-2 deletion also had increased endoplasmic reticulum stress and decreased number of podocytes. Similar results were found in diabetic mice with macrophage PGE₂ receptor subtype 4 deletion. In summary, these studies have demonstrated an important but unexpected role for macrophage COX-2/prostaglandin E₂/PGE₂ receptor subtype 4 signaling to lessen progression of diabetic kidney disease, unlike the pathogenic effects of increased COX-2 expression in intrinsic renal cells.