Abstract Background and Aims Previous studies have regarded high-density lipoprotein cholesterol (HDL-C) as ‘good cholesterol’; however, recent research has unveiled a higher incidence of adverse events among individuals with extremely elevated HDL-C levels. Method Two cohorts of subjects were analyzed in this study. In the first cohort, a total of 375 participants with DKD who underwent renal-biopsy between January 2008 and September 2020, from West China Hospital T2DM-DKD cohort, were enrolled for the longitudinal observational study. Additionally, 3,262 participants with DM and chronic kidney disease (CKD) from the National Health and Nutrition Examination Survey (NHANES) 1999-2018 were included. Kaplan-Meier curves and Cox proportional hazard models were used to analyze the association between HDL-C concentration and the incidence of end-stage renal disease (ESRD) as well as all-cause mortality. Results Patients were divided into three groups based on HDL-C levels. After a median follow-up of 36 months, 44% of the patients developed ESRD in T2DM-DKD cohort. Patients in Group 3 (HDL-C ≥1.55 mmol/L) exhibited a higher risk of ESRD compared to Group 1 (HDL-C <1.03 mmol/L). After adjusting for confounders, Group 3 patients still had a significantly higher risk of ESRD (adjusted HR: 1.68, 95% CI: 1.03, 2.71). Analysis of HDL subfractions revealed that a higher HDL3/HDL2 ratio was associated with a lower risk of ESRD. Furthermore, in the NHANES cohort, higher HDL-C levels were linked to a higher risk of all-cause mortality during a median follow-up of 75 months as the result of the weighted Kaplan-Meier curves (p = 0.02). Notably, in patients with CKD stages 1-2, Group 3 participants had a significantly higher hazard ratio (HR: 1.61, 95% CI: 1.19, 2.19) after adjusting for confounders. Conclusion This study challenges the notion of HDL-C as ‘good cholesterol’ in patients with DKD, as higher HDL-C levels were associated with increased risks of ESRD and all-cause mortality. Additionally, the study highlights the potential protective effect of a higher HDL3/HDL2 ratio against ESRD. These findings contribute to reevaluating the role of HDL-C and its subfractions in DKD patients.