Esculetin, an antioxidant, has been used in the treatment of a variety of diseases. This study aimed to investigate the protective effect of esculetin in attenuating streptozotocin (STZ)-induced type I diabetic nephropathy and to understand the molecular mechanism involved in it. Sprague-Dawley rats were rendered diabetic using a single dose of STZ (55 mg/kg, i.p.). Protein expression of PPARγ and transforming growth factor-β1 (TGF-β1) was detected by immunoblotting and immunohistochemistry respectively. RNA expression levels of Mmp13 and Bmp6 were detected by RT-PCR analysis. In diabetic rats, esculetin treatment resulted in a significant decrease in blood glucose, blood urea nitrogen, and plasma creatinine and increase in plasma albumin levels. Esculetin treatment attenuates the downregulation of PPARγ in diabetic kidney, which in turn blocks the TGF-β1-mediated fibronectin expression. In addition, it attenuates the decrease in mono-methylation (K4) and acetylation of histone H3 in diabetic kidney. RT-PCR analysis revealed that esculetin treatment provides protection by decreasing antifibrotic Bmp6 and increasing fibrogenic Mmp13 mRNA expression in diabetic kidney. This is the first report to show that protection observed by esculetin treatment involves alteration in mRNA expression of Mmp13 and Bmp6 genes either directly via altered histone H3 modifications or indirectly by inhibiting the PPARγ/TGF-β1 pathway.