Studies have indicated that low high-density lipoprotein cholesterol (HDL-C) level is an important risk factor for diabetic kidney disease (DKD) in patients with type 2 diabetes (T2D). However, whether higher HDL-C levels decrease the risk of developing DKD remains unclear. This study aimed to clarify the relationship between HDL-C levels and DKD risk in individuals with T2D in China. In total, 936 patients with T2D were divided into DKD and non-DKD groups. The association between HDL-C levels and DKD risk was evaluated using logistic regression analysis and restricted cubic spline curves adjusted for potential confounders. Threshold effect analysis of HDL-C for DKD risk was also performed. Higher HDL-C levels did not consistently decrease the DKD risk. Furthermore, a nonlinear association with threshold interval effects between HDL-C levels and the incidence of DKD was observed. Patients with HDL-C ≤ 0.94 mmol/L or HDL-C > 1.54 mmol/L had significantly higher DKD risk after adjusting for confounding factors. Interestingly, the association between high HDL-C levels and increased DKD risk was more significant in women. A U-shaped association between HDL-C levels and DKD risk was observed; therefore, low and high HDL-C levels may increase the DKD risk in patients with T2D.