Background: One of the most common microvascular complications of diabetes is diabetic kidney disease (DKD). The Huajuxiaoji formula (HJXJ) has shown clinical efficacy for DKD; however, its regulatory mechanisms against DKD remain elusive. We investigated NLRP3 inflammasome and the mechanisms of HJXJ by which HJXJ alleviates DKD.Methods: Phenyl sulfate (PS) was used to establish DKD models. HJXJ was administered to mice through intragastric or made into a pharmaceutical serum for the cell cultures. Biological indicator levels in mouse blood and urine were analyzed, and kidney tissues were used for HE, Masson, and PAS staining. ELISA and western blotting were used to detect inflammatory cytokines and protein levels, respectively. Reactive oxygen species (ROS) production and pyroptosis were evaluated using flow cytometry. Lentiviral vector‐mediated overexpression of NLRP3 was performed to determine whether NLRP3 participates in the antipyroptotic effect of HJXJ.Results: HJXJ significantly reduced the severity of the injury and, in a dose‐dependent manner, decreased the levels of biological markers including creatinine, blood urea nitrogen, urine protein, and endotoxin, as well as inflammatory cytokines such as interleukin (IL)‐1β, IL‐18, tumor necrosis factor‐α, and IL‐6 in DKD mice. Treatment with HJXJ reversed the downregulation of podocin, nephrin, ZO‐1, and occludin and upregulated ROS, NLRP3, Caspase‐1 P20, and GSDMD‐N induced by PS. Moreover, the upregulation of NLRP3 expression increased the number of cells positive for pyroptosis. HJXJ suppressed pyroptosis and inflammasome activation by inhibiting NLRP3 expression.Conclusions: Generally, HJXJ has the potential to reduce DKD injury and exerts anti‐DKD effects by inhibiting the NLRP3‐mediated NLRP3 inflammasome activation and pyroptosis in vitro and in vivo.