Diabetic nephropathy is the leading cause of end-stage renal disease in the Western hemisphere. Endothelial dysfunction is the central pathophysiologic denominator for all cardiovascular complications of diabetes including nephropathy. Abnormalities of nitric oxide (NO) production modulate renal structure and function in diabetes but, despite the vast literature, major gaps exist in our understanding in this field because the published studies mostly are confusing and contradictory. In this review, we attempt to review the existing literature, discuss the controversies, and reach some general conclusions as to the role of NO production in the diabetic kidney. The complex metabolic milieu in diabetes triggers several pathophysiologic mechanisms that simultaneously stimulate and suppress NO production. The net effect on renal NO production depends on the mechanisms that prevail in a given stage of the disease. Based on the current evidence, it is reasonable to conclude that early nephropathy in diabetes is associated with increased intrarenal NO production mediated primarily by constitutively released NO (endothelial nitric oxide synthase [eNOS] and neuronal nitric oxide synthase [nNOS]). The enhanced NO production may contribute to hyperfiltration and microalbuminuria that characterizes early diabetic nephropathy. On the other hand, a majority of the studies indicate that advanced nephropathy leading to severe proteinuria, declining renal function, and hypertension is associated with a state of progressive NO deficiency. Several factors including hyperglycemia, advanced glycosylation end products, increased oxidant stress, as well as activation of protein kinase C and transforming growth factor (TGF)-beta contribute to decreased NO production and/or availability. These effects are mediated through multiple mechanisms such as glucose quenching, and inhibition and/or posttranslational modification of NOS activity of both endothelial and inducible isoforms. Finally, genetic polymorphisms of the NOS enzyme also may play a role in the NO abnormalities that contribute to the development and progression of diabetic nephropathy.