We explored the hypothesis that direct AT2R stimulation improves albuminuria in diabetes by reducing renal inflammation and improving oxidative stress. Sham and DM Sprague-Dawley rats were treated for 4 weeks with vehicle (V) or AT2R agonist Compound 21 (C21; 0.3 mg/kg/d). C21 was infused systemically by osmotic minipump. Diabetes was induced by streptozotocin (65 mg/kg IP). At the end of study, we monitored BP, 24h urine collection for measurements of urinary albumin to creatinine ratio (UACR), and renal interstitial fluid (RIF) levels of tumor necrosis factor-α (TNF-α), interleukin-6 (IL-6), nitric oxide (NO), cGMP, and 8-isoprostane (ISO). Data are shown as mean±SE. There were no significant differences in BP between different treatments. UACR (μg/mg), compared to Control+V (14±2), increased significantly in DM+V (60±3, p<0.001) and did not change in Control+C21 (16±2). Compared to DM+V, UACR decreased significantly by 20% in DM+C21 (50±3, P<0.04). RIF TNF-α and IL-6 (pg/min), compared to Control+V (0.040±0.001 and 0.613±0.012, respectively), increased in DM+V (0.046±0.001 and 0.652±0.005, P<0.01) and did not change in Control+C21 (0.041±0.001 and 0.622±0.008). Compared to DM+V, RIF TNF-α and IL-6 decreased in DM+C21 (0.041±0.001 and 0.616±0.007, P<0.01). RIF NO (μmol/min) and cGMP (fmol/min), compared to Control+V (7.0±0.3 and 3.8±0.4), decreased in DM+V (4.3±0.5 and 1.7±0.2, P<0.001) and did not change in Control+C21 (6.6±0.3 and 3.7±0.5). RIF NO and cGMP increased in DM+C21 (6.2±0.8 and 2.7±0.4, P<0.04) compared to DM+V. RIF ISO (pmol/min), compared to Control+V (0.135±0.005), increased in DM+V (0.158±0.007, P<0.02) and did not change in Control+C21 (0.134±0.010). Compared to DM+V, RIF ISO significantly decreased in DM+C21 (0.135±0.006, P<0.03). We concluded that direct AT2R stimulation by the nonpeptide agonist C21 improves diabetic nephropathy through the reduction of renal inflammatory factors and improvement of oxidative stress.