Oxidative stress is a major cause of diabetic nephropathy. Upregulation of the key antioxidative transcription factor, nuclear factor-erythroid 2-related factor 2 (Nrf2), was found to prevent the development of diabetic nephropathy. The present study was designed to explore the therapeutic effect of Nrf2 induced by proteasomal inhibitor MG132 at a low dose (10 μg/kg) on diabetic nephropathy. Transgenic type 1 diabetic (OVE26) mice displayed renal dysfunction with albuminuria by 3 mo of age, at which time MG132 treatment was started. After 3-mo treatment with MG132, renal function, morphology, and biochemical changes were examined with real-time PCR, Western blotting, and immunohistochemical examination. Compared with age-matched, nontreated diabetic mice, MG132-treated diabetic mice showed significant improvements in terms of renal structural and functional alterations. These therapeutic effects were associated with increased Nrf2 expression and transcriptional upregulation of Nrf2-regulated antioxidants. Mechanistic study using human renal tubular HK11 cells confirmed the role of Nrf2, as silencing the Nrf2 gene with its specific siRNA abolished MG132 prevention of high-glucose-induced profibrotic response. Furthermore, diabetes was found to significantly increase proteasomal activity in the kidney, an effect that was significantly attenuated by 3 mo of treatment with MG132. These results suggest that MG132 upregulates Nrf2 function via inhibition of diabetes-increased proteasomal activity, which can provide the basis for the therapeutic effect of MG132 on the kidney against diabetes-induced oxidative damage, inflammation, fibrosis, and eventual dysfunction.