Diabetic nephropathy (DN) is the most common cause of end-stage kidney disease in the United States, and accounts for a significant increase in morbidity and mortality in patients with diabetes. Early detection is critical in improving clinical management. Although microalbuminuria is regarded as the gold standard for diagnosing onset of DN, its predictive powers are limited. There have been great efforts in recent years to identify better strategies for the detection of early stages of DN and progressive kidney function decline in diabetic patients. Here, we review various urinary biomarkers that have emerged and hold promise to be more sensitive for earlier detection of diabetic kidney disease and predictive of progression to end-stage kidney disease. A number of key biomarkers present in the urine have been identified that reflect kidney injury at specific sites along the nephron, including glomerular/podocyte damage and tubular damage, oxidative stress, inflammation, and activation of the intrarenal renin-angiotensin system. Moreover, we describe newer approaches including urinary microRNAs, which are short noncoding mRNAs that regulate gene expression, and urine proteomics used to identify potential novel biomarkers in the development and progression of diabetic kidney disease.