Altered renal function has been encountered in normoalbuminuric patient with type 2 diabetes. A search for alternative index that is more sensitive than microalbuminuria for early detection of diabetic nephropathy has been performed. In the present paper, compartmental functions of nephron namely creatinine clearance (CCr) reflecting glomerular function, fractional excretion of magnesium (FE Mg) reflecting tubular function and intrarenal hemodynamics reflecting vascular function were assessed in 40 type 2 diabetic patients with normoalbuminuria and in 10 type 2 diabetic patients with albuminuria. In normoalbuminuric patients, glomerular function showed a low, normal or high CCr due to hyperfiltration. Tubular function revealed a significantly elevated FE Mg. Vascular function was altered with preferential constriction of the efferent arteriole, intraglomerular hypertension and profound reduction in peritubular capillary flow. A greater degree of functional defect was observed in albuminuric patients. Defective functions of the nephron implies that renal tissue injury has already been present in normoalbuminuric state. FE Mg appears to be a sensitive marker for early detection of diabetic nephropathy. Significant reduction in peritubular capillary flow correlates inversely with the altered FE Mg. Such correlation favors the chronic ischemic concept of tubulointerstitial injury and therefore supports the tubular functional defect observed in type 2 diabetes.