Chronic stress is considered a co‐morbid factor in diabetic complications, but evidence is anecdotal, and without potential mechanisms. Since neuropeptide Y (NPY) is implicated in other stress‐induced pathophysiology, we hypothesize that stress will activate the NPY system and exacerbate early diabetic kidney disease. Diabetes (D) was induced with STZ in adult rats, and after 6 wks rats were placed in 4° water for 2h/day/14 days, then sacrificed. Chronic stress had no effect on plasma NPY levels in female rats. In contrast, stress increased platelet levels of NPY in both non‐diabetic (ND) (23.2±3.9 v 12.2±2.1 ng/ml in control, P<0.01) and D males (18.2±.9 ng/ml, P<0.05 vs cont). Of potential importance is the finding that ND females had 30% greater renal DPPIV/protease activity (which cleaves NPY to NPY 3–36) than ND male kidneys (P<0.05). This activity was decreased to male levels +/− STZ, suggesting that the diabetic female kidney may be exposed to excessive amount of NPY 1–36. Stress significantly increased the tubulointerstitial fibrotic index (in AU) in both sexes in ND rats [Male: 0.72±.06 v 0.54±.02 in cont, P<0.05); Female: 0.68±.04 vs 0.44±.07, P<0.05] and diabetic rats [Male: 1.61±.06 v 1.37±.03 non‐stress, P<0.05; Female: 1.51±.08 v 1.21±.06, P<0.05]. Thus, for the first time we show that chronic stress initiates renal fibrosis in both ND and D kidneys, and sex differences in the stress‐induced NPY system.