Diabetic nephropathy (DN) is a progressive kidney disorder that develops as a complication of diabetes due to long-term exposure to elevated blood glucose levels (BGLs). In this case, an intervention of therapeutic moieties is needed to target the specific elements involved in diabetes to prevent/delay the deterioration of kidney function. Therefore, the present study focused on designing and evaluating a potent nano-formulation of a combination of C-peptide (CPep) and the anti-diabetic drug lisofylline (LSF) to prevent streptozotocin (STZ)-induced DN. As a strategic intervention, an LSF-oleic acid prodrug (LSF-OA) was initially synthesized and further encapsulated in an in-house-synthesized cationic polymer [(mPEG-b-P(CB-{g-DMDP}-co-LA)); mPLM] to prepare polymeric nano-complexes of CPep via electrostatic interaction, possessing a size of 218.6 ± 14.4 nm and zeta potential of +5.2 mV together with stability for 30 days at 25 °C. mPLM-LSF-OA-CPep nanoparticles demonstrated hemocompatibility with RBCs and exhibited potent anti-oxidant activity by reducing nitrite levels, inducing the release of anti-oxidant GSH and protecting metabolically stressed rat kidneys and murine insulinoma cells from apoptosis. In vivo pharmacokinetics depicted an increase in t½ and mean residence time in rats, which further improved the BGL and renal conditions and reduced plasma IL-6 and TNF-α levels in the STZ-induced DN animal model when treated with mPLM-LSF-OA-CPep compared to free LSF and CPep. Moreover, an increase in the plasma insulin level and detection of proliferative marker cells in pancreatic islets suggested the regeneration of β-cells in diabetic animals.