Abstract Background Diabetes is a downregulator of atrial natriuretic peptide (ANP), resulting in reduced nitric oxide level and low expression of endothelial nitric oxide synthase by which nitric oxide level get reduced. In the present study, we examined the role of ANP in reduced nitric oxide level, which may be responsible in controlling diabetic nephropathy in rats. Methods Serum nitrite/nitrate ratio, blood urea nitrogen, protein in urine, urinary output, serum creatinine, serum cholesterol, kidney weight, kidney hypertrophy, renal cortical collagen content, thiobarbituric acid level, and antioxidant enzymatic activities were assessed. Results Treatment with lisinopril (1 mg/kg) significantly attenuated diabetes-induced elevated glucose level, cholesterol level, and protein in urine concentration. Whereas ANP at low dose (5 μg/kg) has no effect on elevated markers of diabetic nephropathy, treatment with intermediate (10 μg/kg) and high-dose ANP (20 μg/kg) significantly attenuated the diabetes-induced increased blood urea nitrogen, protein in urine, urinary output, creatinine, cholesterol, kidney weight, kidney hypertrophy, renal collagen content, and thiobarbituric acid level and reduced endogenous antioxidant enzymatic activities. High dose of ANP was more effective in attenuating the diabetes-induced nephropathy, renal oxidative stress, and antioxidant enzyme activity as compared with the treatment with low-dose ANP (5 μg/kg), intermediate-dose ANP (10 μg/kg), or lisinopril (1 mg/kg, employed as standard agent). Administration of erythro-9-(2-hydroxy-3-nonyl)adenine, a phosphodiesterase-2 inhibitor (3 mg/kg), in combination with high-dose ANP significantly attenuated high-dose ANP induced ameliorative effects in diabetic nephropathy. Conclusions Taken together, these results indicate that diabetes-induced oxidative stress and lipid alterations may be responsible for the induction of nephropathy in diabetic rats. ANP at intermediate and high doses have prevented the development of diabetes-induced nephropathy by reducing the cholesterol level, protein in urine concentration, and renal oxidative stress and by increasing the nitrite/nitrate ratio, certainly providing the direct nephroprotective action.