Background: Diabetic nephropathy is the principal cause of end stage renal disease (ESRD) in the Western world, with renal disease as a major cause of morbidity and mortality in the diabetic population. Inflammation is a potential factor in the development and progression of DN and recent data indicate that diabetes includes an inflammatory component which may contribute to diabetic complications. Objectives: Aiming to investigate possible correlation between the presence and degree of albuminuria and urinary tumor necrosis factor-alpha as a marker of inflammation in diabetic nephropathy in type 2 diabetes mellitus. Patients and Methods: This study was conducted at El-Hussein University Hospital on 60 patients with type-2 diabetes mellitus and 20 healthy volunteers for the matched age and sex. Diabetic patients were divided into 3 groups according to the degree of proteinuria. Controls: 20 healthy controls, Group A: 20 type 2 diabetic patients without albuminuria, Group B: 20 type 2 diabetic patients with microalbuminuria. Group C: 20 type 2 diabetic patients with macro-albuminuria. Results: urinary TNF-alpha and serum hs-CRP were significantly higher in diabetic than controls. It was also significantly higher in patients with macroalbuminuria than those with microalbuminuria and normoalbuminuria. There was significant positive correlation between urinary TNF-α and urine protein excretion in diabetic patients as well as age, CRP, duration of diabetes and glycemic control. Conclusion: urinary TNF-α is independently and significantly correlated with the presence and degree of albuminuria in diabetic nephropathy in type 2 diabetes mellitus. This suggests that TNF-α play a significant role in the pathogenesis and progression of renal injury in diabetes.