AimTo investigate the therapeutic effects and immunomodulatory mechanisms of human placenta‐derived mesenchymal stem cells (PMSCs) in diabetic kidney disease (DKD).MethodsStreptozotocin‐induced DKD rats were administered an equivalent volume of saline or PMSCs (1 × 106 in 2 mL phosphate‐buffered saline per rat) for 3 weeks. Eight weeks after treatment, we examined the biochemical parameters in the blood and urine, the ratio of T helper 17 cells (Th17) and regulatory T cells (Treg) in the blood, cytokine levels in the kidney and blood, and renal histopathological changes. In addition, we performed PMSC tracing and renal transcriptomic analyses using RNA‐sequencing. Finally, we determined whether PMSCs modulated the Th17/Treg balance by upregulating programmed death 1 (PD‐1) in vitro.ResultsThe PMSCs significantly improved renal function, which was assessed by serum creatinine levels, urea nitrogen, cystatin C levels, urinary albumin‐creatinine ratio, and the kidney index. Further, PMSCs alleviated pathological changes, including tubular vacuolar degeneration, mesangial matrix expansion, and glomerular filtration barrier injury. In the DKD rats in our study, PMSCs were mainly recruited to immune organs, rather than to the kidney or pancreas. PMSCs markedly promoted the Th17/Treg balance and reduced the levels of pro‐inflammatory cytokines (interleukin [IL]‐17A and IL‐1β) in the kidney and blood of DKD rats. In vitro experiments showed that PMSCs significantly reduced the proportion of Th17 cells and increased the proportion of Treg cells by upregulating PD‐1 in a cell‐cell contact manner and downregulating programmed death‐ligand 1 (PD‐L1) expression in PMSCs, which reversed the Th17/Treg balance.ConclusionWe found that PMSCs improved renal function and pathological damage in DKD rats and modulated Th17/Treg balance through the PD‐1/PD‐L1 pathway. These findings provide a novel mechanism and basis for the clinical use of PMSCs in the treatment of DKD.