Chronic inflammation promotes the progression of diabetic nephropathy (DN). However, the role of TNF-α remains unclear. The objectives of the present study were to examine whether TNF-α inhibition with a soluble TNF receptor (TNFR)2 fusion protein, i.e., etanercept (ETN), improves the early stage of DN in the type 2 diabetic model of the KK-Ay mouse and to also investigate which TNF pathway, TNFR1 or TNFR2, is predominantly involved in the progression of this disease. ETN was injected intraperitoneally into mice for 8 wk. Renal damage was evaluated by immunohistochemistry, Western blot analysis, and/or real-time PCR. In vitro, mouse tubular proximal cells were stimulated by TNF-α and/or high glucose (HG) and treated with ETN. ETN dramatically improved not only albuminuria but also glycemic control. Renal mRNA and/or protein levels of TNFR2, but not TNF-α and TNFR1, in ETN-treated KK-Ay mice were significantly decreased compared with untreated KK-Ay mice. mRNA levels of ICAM-1, VCAM-1, and monocyte chemoattractant protein-1 and the number of F4/80-positive cells were all decreased after treatment. Numbers of cleaved caspase-3- and TUNEL-positive cells in untreated mice were very few and were not different from ETN-treated mice. In vitro, stimulation with TNF-α or HG markedly increased both mRNA levels of TNFRs, unlike in the in vivo case. Furthermore, ETN partly recovered TNF-α-induced but not HG-induced TNFR mRNA levels. In conclusion, it appears that ETN may improve the progression of the early stage of DN predominantly through inhibition of the anti-inflammatory action of the TNF-α-TNFR2 pathway.