(1) Background: It has rarely been studied whether the severity of diabetic retinopathy (DR) could influence renal disease progression in end-stage renal disease (ESRD) and chronic kidney disease (CKD) in patients with type 2 diabetes. The aim of this study was to evaluate renal disease progression in ESRD and CKD according to DR severity in patients with type 2 diabetes. (2) Methods: We included 1329 patients and divided the cohort into two end-points. The first was to trace the incidence of ESRD in all enrolled participants and the other was to follow their progression to CKD. (3) Results: Significantly higher crude hazard ratios (HRs) of ESRD incidence in all enrolled participants were noted, and this ratio increased in a stepwise fashion. However, after adjustment, DR severity was not associated with ESRD events. Therefore, a subgroup of 841 patients without CKD was enrolled to track their progression to CKD. Compared with no diabetic retinopathy, the progression of CKD increased in a stepwise fashion, from mild nonproliferative diabetic retinopathy (NPDR) to moderate NPDR, to severe NPDR and to proliferative diabetic retinopathy (PDR), both in the crude and adjusted models. (4) Conclusions: The severity of retinopathy appeared to be associated with renal lesions and the development of CKD. Our findings suggest that the severity of DR is a risk factor for progression to CKD. Therefore, diabetic retinopathy is useful for prognosticating the clinical course of diabetic kidney disease.