Podocyte injury and resulting albuminuria are hallmarks of diabetic nephropathy, but targeted therapies to halt or prevent these complications are currently not available. Here, we show that the immune-related molecule B7-1/CD80 is a critical mediator of podocyte injury in type 2 diabetic nephropathy. We report the induction of podocyte B7-1 in kidney biopsy specimens from patients with type 2 diabetes. Genetic and epidemiologic studies revealed the association of two single nucleotide polymorphisms at the B7-1 gene with diabetic nephropathy. Furthermore, increased levels of the soluble isoform of the B7-1 ligand CD28 correlated with the progression to ESRD in individuals with type 2 diabetes. In vitro, high glucose conditions prompted the phosphatidylinositol 3 kinase-dependent upregulation of B7-1 in podocytes, and the ectopic expression of B7-1 in podocytes increased apoptosis and induced disruption of the cytoskeleton that were reversed by the B7-1 inhibitor CTLA4-Ig. Podocyte expression of B7-1 was also induced in vivo in two murine models of diabetic nephropathy, and treatment with CTLA4-Ig prevented increased urinary albumin excretion and improved kidney pathology in these animals. Taken together, these results identify B7-1 inhibition as a potential therapeutic strategy for the prevention or treatment of diabetic nephropathy.