Diabetic nephropathy (DN) is one of the diabetic chronic microvascular consequences and a leading cause of end-stage renal disease (ESRD). DN is defined by hyperfiltration and albuminuria in the early stages, followed by gradual renal function deterioration. The appearance of diabetic kidney disease (DKD) might vary, especially in individuals with type 2 diabetes mellitus, where the concurrent presence of various glomerular/tubular pathologies and severe peripheral vascular disease can become key confounding factors. The fundamental question in the current review is "What is the primary mechanism leading to the pathology of DN?" This review discusses the molecular processes that cause oxidative stress (OS), hypoxia, dysregulated autophagy and apoptosis, and epigenetic alterations causing kidney inflammation and fibrosis, ultimately leading to progressive renal scarring and dysfunction. Additionally, it examines the interplay between metabolic abnormalities, mitochondrial dysfunction, endothelial damage, and pro-inflammatory cytokines, which contribute to the complex pathophysiology of DN and further accelerate renal deterioration.