Background: We investigated the gender differences in the effect of ACE I/D and AGT M235T polymorphisms on the prognosis of diabetic nephropathy (DN). Methods: A total of 525 type 2 diabetics were enrolled to participate in this prospective observational study. ACE and AGT gene polymorphisms were analyzed by polymerase chain reaction. The progression of DN was defined as a shift to a higher stage of DN or a doubling of the baseline serum creatinine level by the end of the study. Results: The baseline biophysical parameters show no gender differences in progression and non-progression of DN. The women who were ACE D allele carriers were found to be at an increased risk of DN progression compared to those with II genotypes (p = 0.024, OR 2.176). No such difference was seen in male patients (p = 0.619, OR 0.833). After adjusting for confounding factors (age, SBP, DBP, BMI, HbA1c, total cholesterol, TG, HDL-C, LDL-C, ACEI, and ARB) in our multiple regression analysis, these women were still found to be at increased risk of progressing to more severe DN (p = 0.008, OR 3.082) but not the men (p = 0.183, OR 0.586). Neither the AGT TT genotype nor the T allele were associated with the progression of DN in either sex after adjusting for confounding factors. Conclusion: Our follow-up study suggests that female diabetic carriers of the ACE D allele might be at an increased risk of DN progression.