Diabetic kidney disease (DKD) is the leading cause of end-stage renal disease (ESRD), which severely affects the quality of patients' lives. However, the current therapeutic approaches can only postpone its progression to ESRD. It is therefore imperative to develop a novel therapeutic strategy for renal injury in DKD, with the objective of restoring renal function and reversing the process of ESRD. In recent years, the potential of mesenchymal stem cell (MSC) therapy for DKD has garnered increasing attention within the scientific community. Preclinical research on MSC therapy has yielded promising results, and the safety of MSC treatment in vivo has been substantiated in clinical studies. An increasing body of evidence suggests that MSC therapy has significant potential for the treatment of DKD. This article reviews the existing research on MSCs and their derived exosomes in treating DKD and analyzes the underlying mechanism of MSC-based therapy for DKD. Additionally, we discuss the potential of combining MSC therapy with conventional pharmacological treatments, along with the constraints and prospects of MSC therapy for DKD. We hope this review can provide a precise and comprehensive understanding of MSCs for the treatment of DKD.