The aim of this study was to investigate the frequency and mechanisms of hypothyroidism observed in diabetic patients with advanced diabetic nephropathy, including outcomes of management for this condition. A controlled study was designed using 32 diabetic and 31 non-diabetic patients not receiving hemodialysis or continuous ambulatory peritoneal dialysis (CAPD) who excreted mean urinary protein greater than 0.5 g/day examined on three consecutive days during admission to our hospital. Thyroid hormones in both serum and urine, anti-thyroid antibodies, renal function and iodine concentrations in serum were measured during admission in all patients included. In particular, in patients who showed overt hypothyroidism, further studies including large-needle biopsies of the thyroid and iodine-perchlorate discharge tests were performed. All patients in the two groups revealed negative antithyroid antibody titers, and the mean serum total iodine levels did not significantly differ between the two groups. Mean serum FT4 levels significantly decreased, and the TSH level was significantly elevated in the diabetic group compared to those in the non-diabetic group (p < 0.005, p < 0.02, respectively). The frequency of overt hypothyroidism in the diabetic group (22%; 7/32) was significantly higher (p < 0.05) than that in the non-diabetic group (3.2%; 1/31). The daily urinary thyroid hormone excretion in both groups did not show any significant correlation with serum thyroid hormone levels. Seven patients who revealed overt hypothyroidism in the diabetic group showed elevated serum total iodine levels during hypothyroidal status, ranging between 177 and 561 microg/l. Also, the iodine-perchlorate discharge tests carried out in six of these patients all showed a positive discharge. After management based on iodine restriction, normalization of serum thyroid hormone levels in accordance with definite decreases in the serum total iodine level was achieved, accompanied by a significant weight reduction. In conclusion, we found a significantly high prevalence of non-autoimmune primary hypothyroidism in patients with advanced diabetic nephropathy compared to those with non-diabetic chronic renal dysfunction, which may partly relate to earlier development of oedematous status. Clinical and laboratory findings suggest that impaired renal handling of iodine resulting in an elevation of serum iodine levels, rather than autoimmune mechanism or urinary hormone loss, may play a principal role in the development of these conditions, probably through a prolongation of the Wolff-Chaikoff effect. The mechanisms by which this phenomenon develops more frequently in diabetic than in non-diabetic renal dysfunction remain to be elucidated.