Nephropathy is a major contributor to overall morbidity and mortality in diabetic patients. Early renal changes during diabetes include Na retention and renal hypertrophy. Tumor necrosis factor (TNF) is elevated during diabetes and is implicated in the pathogenesis of diabetic nephropathy. We tested the hypothesis that TNF contributes to Na retention and renal hypertrophy during diabetes. Rats with streptozotocin-induced diabetes exhibit increased urinary TNF excretion, Na retention, and renal hypertrophy through the first 20 days of diabetes. Administration of a soluble TNF antagonist (TNFR:Fc) to diabetic rats reduces urinary TNF excretion and prevents Na retention and renal hypertrophy. TNF stimulates Na uptake in distal tubule cells isolated from diabetic rats, providing a possible mechanism for TNF-induced Na retention. We conclude that urinary TNF contributes to early diabetic nephropathy and may serve as a valuable diagnostic marker. Furthermore, inhibition of TNF during diabetes may attenuate early pathological changes in diabetic nephropathy.