Although deficiency of the small leucine-rich proteoglycan decorin aggravates diabetic nephropathy in mice, the precise mechanisms of action are not fully understood. In the present study we used decorin-deficient mice (Dcn(-/-)) to further elucidate the molecular mechanisms involved in the protective action of decorin in diabetes. We discovered that streptozotocin-induced diabetes in Dcn(-/-) mice led to increased proteinuria associated with enhanced cyclin-dependent kinase inhibitor p27Kip1 in podocytes and tubular epithelial cells. Furthermore, lack of decorin increased the rate of apoptosis and caused overexpression of the IGF-IR in tubular epithelial cells of diabetic kidneys. In vitro experiments using human proximal renal epithelial cells showed that recombinant decorin was bound to the IGF-IR and protected against high glucose-mediated apoptosis. Furthermore, overexpression of TGFbeta1 and CTGF triggered by decorin deficiency resulted in enhanced accumulation of extracellular matrix in diabetic kidneys. Notably, diabetic Dcn(-/-) kidneys revealed marked upregulation of the proinflammatory proteoglycan biglycan and enhanced infiltration of mononuclear cells. Collectively, our results indicate that decorin is a protective agent during the development of diabetic nephropathy. Future therapeutic approaches that would either enhance the endogenous production of decorin or deliver recombinant decorin to the diseased kidney might improve the outcome of patients with diabetic nephropathy.