Diabetic nephropathy (DN) is a major complication of diabetes and represents the leading cause of end-stage renal disease. Mesenchymal stem cell (MSC) treatment has been demonstrated to be effective in DN models by reducing albuminuria and attenuating glomerular injury; however, limited in-depth understanding of the underlying mechanism and a lack of clinical trials hinders its clinical use. Additionally, most of these experimental studies were conducted on the advanced stage of nephropathy, which is difficult to reverse and consequently showed limited therapeutic efficacy. We sought to evaluate whether early intervention by MSCs has the potential to prevent DN onset and progression as well as protect kidney function when intravenously administered to rats with diabetes. Diabetes was induced in adult male SD rats by streptozotocin (STZ) injection (55 mg/kg, i.p.). The diabetic rats were injected with or without bone marrow-derived MSCs (5x106 per rat), via tail vein at 2, 4, 5 and 7 weeks after diabetes onset. Fasting blood glucose (FBG), blood urea nitrogen (BUN) and serum creatinine (Scr) levels in serum samples and glycosuria (GLU), microalbumin (MAU), and albumin to creatinine ratio (ACR) in urine samples were determined. Renal pathology and immunohistochemistry (IHC) for CD68, MCP-1, fibronectin (FN), transforming growth factor-β (TGF-β) and pro-inflammatory cytokines were also performed. Expression levels of the above factors as well as interleukin-10 (IL-10), and epidermal growth factor (EGF) were assessed by qPCR and multiplex bead-based suspension array system, respectively. Additionally, MSC tracing in vivo was performed. Ex vivo, peritoneal macrophages were co-cultured with MSCs, and expression of inflammatory cytokines was detected as well. MSC treatment profoundly suppressed renal macrophage infiltration and inflammatory cytokine secretion in diabetic rats, resulting in prominently improved kidney histology, systemic homeostasis, and animal survival, although no significant effect on hyperglycemia was observed. Engrafted MSCs were primarily localized in deteriorated areas of the kidney and immune organs 48 h after infusion. MSC treatment upregulated serum anti-inflammatory cytokines IL-10 and EGF. Ex vivo, MSCs inhibited lipopolysaccharide (LPS)-stimulated rat peritoneal macrophage activation via the downregulation of inflammatory-related cytokines such as IL-6, MCP-1, tumor necrosis factor-α (TNF-α) and IL-1β. Our results demonstrated that early intervention with MSCs prevented renal injury via immune regulation in diabetic rats, which restored the homeostasis of the immune microenvironment, contributing to the prevention of kidney dysfunction and glomerulosclerosis.