Background. Peroxisome proliferator-activated receptors (PPARs) are nuclear transcription factors that play a role in insulin sensitivity, lipid metabolism and inflammation. However, the effects of PPAR gamma agonist on renal inflammation have not been fully examined in type 2 diabetic nephropathy. Methods. In the present study, we investigated the effect and molecular mechanism of the PPAR gamma agonist, pioglitazone, on the progression of diabetic nephropathy in type 2 diabetic rats. Inflammatory markers including NF-kappa B, MCP-1 and pro-fibrotic cytokines were determined by RT-PCR, western blot, immunohistochemical staining and EMSA. In addition, to evaluate the direct anti-inflammatory effect of PPAR gamma agonist, we performed an in vitro study using mesangial cells. Results. Treatment of OLETF rats with pioglitazone improved insulin sensitivity and kidney/body weight, but had a little effect on blood pressure. Pioglitazone treatment markedly reduced urinary albumin and MCP-1 excretion, and ameliorated glomerulosclerosis. In cDNA microarray analysis using renal cortical tissues, several inflammatory and profibrotic genes were significantly down-regulated by pioglitazone including NF-kappa B, CCL2, TGF beta 1, PAI-1 and VEGF. In renal tissues, pioglitazone treatment significantly reduced macrophage infiltration and NF-kappa B activation in association with a decrease in type IV collagen, PAI-1, and TGF beta 1 expression. In cultured mesangial cells, pioglitazone-activated endogenous PPAR gamma transcriptional activity and abolished high glucose-induced collagen production. In addition, pioglitazone treatment also markedly suppressed high glucose-induced MCP-1 synthesis and NF-kappa B activation. Conclusions. These data suggest that pioglitazone not only improves insulin resistance, glycaemic control and lipid profile, but also ameliorates renal injury through an anti-inflammatory mechanism in type 2 diabetic rats.