Increased generation of reactive oxygen species (ROS) is a common denominative pathogenic mechanism underlying vascular and renal complications in diabetes mellitus. Endothelial NAD(P)H oxidase is a major source of vascular ROS, and it has an important role in endothelial dysfunction. We hypothesized that activation of endothelial NAD(P)H oxidase initiates and worsens the progression of diabetic nephropathy, particularly in the development of albuminuria. We used transgenic mice with endothelial-targeted overexpression of the catalytic subunit of NAD(P)H oxidase, Nox2 (NOX2TG). NOX2TG mice were crossed with Akita insulin-dependent diabetic (Akita) mice that develop progressive hyperglycemia. We compared the progression of diabetic nephropathy in Akita versus NOX2TG-Akita mice. NOX2TG-Akita mice and Akita mice developed significant albuminuria above the baseline at 6 and 10 weeks of age, respectively. Compared with Akita mice, NOX2TG-Akita mice exhibited higher levels of NAD(P)H oxidase activity in glomeruli, developed glomerular endothelial perturbations, and attenuated expression of glomerular glycocalyx. Moreover, in contrast to Akita mice, the NOX2TG-Akita mice had numerous endothelial microparticles (blebs), as detected by scanning electron microscopy, and increased glomerular permeability. Furthermore, NOX2TG-Akita mice exhibited distinct phenotypic changes in glomerular mesangial cells expressing α-smooth muscle actin, and in podocytes expressing increased levels of desmin, whereas the glomeruli generated increased levels of ROS. In conclusion, activation of endothelial NAD(P)H oxidase in the presence of hyperglycemia initiated and exacerbated diabetic nephropathy characterized by the development of albuminuria. Moreover, ROS generated in the endothelium compounded glomerular dysfunctions by altering the phenotypes of mesangial cells and compromising the integrity of the podocytes.