Type 2 diabetes causes premature morbidity and mortality due to the complications of atherosclerosis and diabetic nephropathy (DN). Polymorphism of Apo E gene is known to influence lipid metabolism. Apo E is polymorphic, consisting of three common isoforms (epsilon2, epsilon3 and epsilon4) encoded by three alleles (2, 3 and 4) in exon 4 on chromosome 19. The aim of this study was to investigate the effect of Apo E polymorphism as a prognostic risk factor for the development of DN. A total of 108 NIDDM patients were recruited from the Nephrology and Endocrinology Departments of our hospital. All subjects were divided into three groups: Group I: diabetes with nephropathy (n:37), group II: diabetes without nephropathy (n:71), group III: controls (n:46). Apo E genotypes were determined by real-time PCR. The epsilon4 allele frequency was significantly higher in-group I (10.8%) than in-group III (2.2%), (p < 0.05). In diabetics without nephropathy, the total cholesterol and LDL cholesterol levels were significantly lower in subjects with epsilon2 alleles than epsilon3 and epsilon4 alleles. In conclusion, the present prospective study indicates that the epsilon4 allele of the Apo E polymorphism is one of the prognostic risk factors involved in the development of DN with type 2 diabetes mellitus.