Diabetic nephropathy is the most serious complication of diabetes mellitus. Progression of the condition leads to end-stage renal failure, and other complications of diabetes are also common in this group of patients. The onset of overt albuminuria in a patient with diabetes heralds an increased risk of death, particularly from cardiovascular disease. There is considerable evidence to show that nephropathy is influenced by genetic factors. Epidemiological studies show that only a minority of patients with diabetes develop nephropathy irrespective of glycaemic control, suggesting that a subgroup of patients are at higher risk of nephropathy. Marked ethnic variation is observed, with nephropathy being more common in certain ethnic groups. Familial clustering of nephropathy is also observed. Parental history of hypertension, diabetes or cardiovascular disease appears to predispose to nephropathy in patients with diabetes. A number of methods are available to dissect polygenic disease: animal models, genetic association studies (case-control studies), affected sib-pair studies, discordant sib-pair studies and transmission distortion analysis. Most published work has been based on association studies. Association studies have shown conflicting results often due to small numbers of cases and controls, and poor phenotypic characterization. The angiotensin-converting enzyme gene insertion (I)/deletion (D) polymorphism has been studied in detail, but does not appear to be a strong risk marker for nephropathy. It does, however, appear to have a role in response to angiotensin-converting enzyme inhibition, with II homozygotes being the most responsive and DD homozygotes the least. A number of other genetic loci have also shown positive associations with nephropathy, including apolipoprotein E, heparan sulphate and aldose reductase. More recently, affected sib-pair analysis and discordant sib-pair analysis have suggested possible genetic loci on chromosomes 3, 7, 9, 12 and 20. These have yet to be reproduced in larger numbers of families, and the specific gene regions on these chromosomes remain elusive. The evidence presented in this review strongly supports the role of genetic factors in nephropathy. Detection of strong genetic risk markers for nephropathy will allow further insights into the pathogenesis of nephropathy, and possibly the development of novel therapeutic agents for its treatment. It will also allow preventive therapy to be directed at those patients with the greatest risk for development of diabetic nephropathy.