As an important modulator of renal function and morphology, the nitric oxide (NO) system has been extensively studied in the diabetic kidney. However, a number of studies in different experimental and clinical settings have produced often confusing data and contradictory findings. We have reviewed a wide spectrum of findings and issues that have amassed concerning the pathophysiology of the renal NO system in diabetes, pointed out the controversies, and attempted to find some explanation for these discrepancies. Severe diabetes with profound insulinopenia can be viewed as a state of generalized NO deficiency, including in the kidney. However, we have focused our hypotheses and conclusions on the events occurring during moderate glycemic control with some degree of treatment with exogenous insulin, representing more the clinically applicable state of diabetic nephropathy. Available evidence suggests that diabetes triggers mechanisms that in parallel enhance and suppress NO bioavailability in the kidney. We hypothesize that during the early phases of nephropathy, the balance between these two opposing forces is shifted toward NO. This plays a role in the development of characteristic hemodynamic changes and may contribute to consequent structural alterations in glomeruli. Both endothelial (eNOS) and neuronal NO synthase can contribute to altered NO production. These enzymes, particularly eNOS, can be activated by Ca(2+)-independent and alternative routes of activation that may be elusive in traditional methods of investigation. As the duration of exposure to the diabetic milieu increases, factors that suppress NO bioavailability gradually prevail. Increasing accumulations of advanced glycation end products may be one of the culprits in this process. In addition, this balance is continuously modified by actual metabolic control and the degree of insulinopenia.