Angiostatin is a proteolytic fragment of plasminogen and a potent angiogenic inhibitor. Previous studies have shown that angiostatin inhibits retinal neovascularization and reduces retinal vascular permeability in diabetic retinopathy. Here, it is reported for the first time that angiostatin is also implicated in diabetic nephropathy (DN). Angiostatin levels are dramatically decreased in the kidney of streptozotocin-induced diabetic rats. Consistently, diabetic kidneys also showed decreased expression and proteolytic activities of matrix metalloproteinase-2, an enzyme that releases angiostatin from plasminogen. Adenovirus-mediated delivery of angiostatin significantly alleviated albuminuria and attenuated the glomerular hypertrophy in diabetic rats. Moreover, angiostatin treatment downregulated the expression of vascular endothelial growth factor and TGF-beta1, two major pathogenic factors of DN, in diabetic kidneys. In cultured human mesangial cells, angiostatin blocked the overexpression of vascular endothelial growth factor and TGF-beta1 that were induced by high glucose while increasing the levels of pigment epithelium-derived factor, an endogenous inhibitor of DN. Moreover, angiostatin effectively inhibited the high-glucose-and TGF-beta1-induced overproduction of proinflammatory factors and extracellular matrix proteins via blockade of the Smad signaling pathway. These findings suggest that the decrease of angiostatin levels in diabetic kidney may contribute to the pathologic changes such as inflammation and fibrosis in DN. Therefore, angiostatin has therapeutic potential in DN as a result of its anti-inflammatory and antifibrosis activities.