Diabetic nephropathy is a complex and poorly understood disease process, and our current treatment options are limited. It remains critical, then, to identify novel therapeutic targets. Recently, a developmental protein and one of the bone morphogenetic protein antagonists, Gremlin, has emerged as a novel modulator of diabetic nephropathy. The high expression and strong co-localization with transforming growth factor-beta1 in diabetic kidneys suggests a role for Gremlin in the pathogenesis of diabetic nephropathy. We have constructed a gremlin siRNA plasmid and have examined the effect of Gremlin inhibition on the progression of diabetic nephropathy in a mouse model. CD-1 mice underwent uninephrectomy and STZ treatment prior to receiving weekly injections of the plasmid. Inhibition of Gremlin alleviated proteinuria and renal collagen IV accumulation 12 weeks after the STZ injection and inhibited renal cell proliferation and apoptosis. In vitro experiments, using mouse mesangial cells, revealed that the transfect ion of gremlin siRNA plasmid reversed high glucose induced abnormalities, such as increased cell proliferation and apoptosis and increased collagen IV production. The decreased matrix metalloprotease level was partially normalized by transfection with gremlin siRNA plasmid. Additionally, we observed recovery of bone morphogenetic protein-7 signaling activity, evidenced by increases in phosphorylated Smad 5 protein levels. We conclude that inhibition of Gremlin exerts beneficial effects on the diabetic kidney mainly through maintenance of BMP-7 activity and that Gremlin may serve as a novel therapeutic target in the management of diabetic nephropathy.