Kallistatin is an inhibitor of tissue kallikrein and also inhibits the Wnt pathway. Its role in diabetic nephropathy (DN) is uncertain. Here we reported that serum kallistatin levels were significantly increased in diabetic patients with DN compared to those in diabetic patients without DN and healthy controls, and positively correlated with urinary albumin excretion. In addition, renal kallistatin levels were significantly upregulated in mouse models of type 1 (Akita, OVE26) and type 2 diabetes (db/db). To unveil the effects of kallistatin on DN and its underlying mechanism, we crossed transgenic mice overexpressing kallistatin with OVE26 mice (KS‐tg/OVE). Kallistatin overexpression exacerbated albuminuria, renal fibrosis, inflammation, and oxidative stress in diabetes. Kallikrein activity was inhibited while the renin‐angiotensin system (RAS) upregulated in the kidney of KS‐tg/OVE mice compared to WT/OVE mice, suggesting a disturbed balance between the RAS and kallikrein‐kinin systems. As shown by immunostaining of endothelial makers, renal vascular densities were decreased accompanied by increased HIF‐1α and erythropoietin levels in the kidneys of KS‐tg/OVE mice. Taken together, high levels of kallistatin exacerbate DN at least partly by inducing RAS overactivation and hypoxia. The present study demonstrated a positive correlation between kallistatin levels and DN, suggesting a potential biomarker for prognosis of DN.