There are controversial results related to the contribution of insertion (I)/deletion (D) polymorphism of the angiotensin I-converting enzyme (ACE) in the development of diabetic nephropathy. To assess the distribution of this polymorphism in diabetic patients with and without nephropathy we studied 140 unrelated type 2 diabetic patients from the Kermanshah Province of Iran with ethnic background of Kurds including 68 patients with macroalbuminuria and 72 normoalbuinuric diabetic patients as controls. Genotyping was done by polymerase chain reaction (PCR). The frequency of D allele in nephropathic and normoalbuminuric patients were 69.1 and 58.3%, respectively (P = 0.061). In individuals with DD genotype the risk of macroalbuminuria increased 2.87-fold (P = 0.057). Significant lower level of serum ACE activity was found in the normoalbuminuric (59.76 IU/l) compared to macroalbuminuric (97.43 IU/l) patients. The serum ACE activity was significantly higher in macroalbuminuric patients with ID (105.7 IU/l) and ID + DD (100.7 IU/l) genotypes compared to normoalbuminuric patients with the same genotypes (63.5 and 64.2 IU/l, respectively). Treatment with captopril significantly (P = 0.045) reduced the serum ACE activity in normoalbuminuric patients with DD genotype compared to macroalbuminuric patients with the same genotype (33.6 vs. 73.8 IU/l). However, the greatest benefit effect of losartan therapy on ACE activity was observed only in macroalbuminuric patients with DD genotype compared to that in normoalbuminuric patients (61.0 vs. 109.0 IU/l, P = 0.06). Our study suggests the importance of ethnic origin in the development of diabetic nephropathy and demonstrates different responses to therapy according to genotype and stage of diabetes.