Diabetic kidney disease has a high global disease burden and substantially increases the risk of kidney failure and cardiovascular events. Despite treatment, there is substantial residual risk of disease progression with existing therapies. Therefore, there is an urgent need to better understand the molecular mechanisms driving diabetic kidney disease to help identify new therapies that slow progression and reduce associated risks. Diabetic kidney disease is initiated by diabetes-related disturbances in glucose metabolism, which then trigger other metabolic, hemodynamic, inflammatory, and fibrotic processes that contribute to disease progression. This review summarizes existing evidence on the molecular drivers of diabetic kidney disease onset and progression, focusing on inflammatory and fibrotic mediators—factors that are largely unaddressed as primary treatment targets and for which there is increasing evidence supporting key roles in the pathophysiology of diabetic kidney disease. Results from recent clinical trials highlight promising new drug therapies, as well as a role for dietary strategies, in treating diabetic kidney disease.