Nephropathy is a major complication of diabetes. Alterations of mesangial cells have traditionally been the focus of research in deciphering molecular mechanisms of diabetic nephropathy. Injury of podocytes, if recognized at all, has been considered a late consequence caused by increasing proteinuria rather than an event inciting diabetic nephropathy. However, recent biopsy studies in humans have provided evidence that podocytes are functionally and structurally injured very early in the natural history of diabetic nephropathy. The diabetic milieu, represented by hyperglycemia, nonenzymatically glycated proteins, and mechanical stress associated with hypertension, causes downregulation of nephrin, an important protein of the slit diaphragm with antiapoptotic signaling properties. The loss of nephrin leads to foot process effacement of podocytes and increased proteinuria. A key mediator of nephrin suppression is angiotensin II (ANG II), which can activate other cytokine pathways such as transforming growth factor-β (TGF-β) and vascular endothelial growth factor (VEGF) systems. TGF-β1 causes an increase in mesangial matrix deposition and glomerular basement membrane (GBM) thickening and may promote podocyte apoptosis or detachment. As a result, the denuded GBM adheres to Bowman’s capsule, initiating the development of glomerulosclerosis. VEGF is both produced by and acts upon the podocyte in an autocrine manner to modulate podocyte function, including the synthesis of GBM components. Through its effects on podocyte biology, glomerular hemodynamics, and capillary endothelial permeability, VEGF likely plays an important role in diabetic albuminuria. The mainstays of therapy, glycemic control and inhibition of ANG II, are key measures to prevent early podocyte injury and the subsequent development of diabetic nephropathy.