Although debated for many years whether haemodynamic or structural changes are more important in the development of diabetic nephropathy, it is now clear that these processes are interwoven and present two sides of one coin. On a molecular level, hyperglycaemia and proteins altered by high blood glucose such as Amadori products and advanced glycation end-products (AGEs) are key players in the development of diabetic nephropathy. Recent evidence suggests that an increase in reactive oxygen species (ROS) formation induced by high glucose-mediated activation of the mitochondrial electron-transport chain is an early event in the development of diabetic complications. A variety of growth factors and cytokines are then induced through complex signal transduction pathways involving protein kinase C, mitogen-activated protein kinases, and the transcription factor NF-kappaB. High glucose, AGEs, and ROS act in concert to induce growth factors and cytokines. Particularly, TGF-beta is important in the development of renal hypertrophy and accumulation of extracellular matrix components. Activation of the renin-angiotensin system by high glucose, mechanical stress, and proteinuria with an increase in local formation of angiotensin II (ANG II) causes many of the pathophysiological changes associated with diabetic nephropathy. In fact, it has been shown that angiotensin II is involved in almost every pathophysiological process implicated in the development of diabetic nephropathy (haemodynamic changes, hypertrophy, extracellular matrix accumulation, growth factor/cytokine induction, ROS formation, podocyte damage, proteinuria, interstitial inflammation). Consequently, blocking these deleterious effects of ANG II is an essential part of every therapeutic regiment to prevent and treat diabetic nephropathy. Recent evidence suggests that regression of diabetic nephropathy could be achieved under certain circumstances.