Diabetic nephropathy is a major microvascular complication of diabetes and a leading cause of end-stage renal diseases. Vascular endothelial growth factor (VEGF) and transformation growth factor β (TGF-β) are known as major pathogenic factors of diabetic nephropathy. Pigment epithelium derived factor (PEDF) is a potent angiogenic inhibitor and neurotrophic factor and has been well studied in the eye. Decreased ocular PEDF levels were associated with diabetic retinopathy in both diabetic patients and diabetic animal models. In the present study, we found that PEDF is expressed in normal kidney, predominantly in the glomeruli, at levels much higher than in the retina. Renal PEDF levels were decreased at both the mRNA and protein levels in streptozotocin (STZ)-induced diabetic rats. The decrease mainly occurred in the glomeruli and was reversely correlated with the degree of hyperglycemia and microalbuminuria. In vitro studies showed that PEDF blocked the high glucose-induced fibronectin overproduction in cultured human renal mesangial cells. Furthermore, PEDF decreased high glucose-induced VEGF and TGF-β secretion in human mesangial cells. PEDF also inhibits inflammation induced by high glucose and TGF-β. Taken together, these results suggest that PEDF serves as an endogenous inhibitor of TGF-β and an anti-inflammatory factor and prevents the VEGF, TGF-β and extracellular matrix overproduction in the normal kidney. The decreased expression of PEDF in diabetic kidney may represent a new pathogenic mechanism for diabetic nephropathy.