Diabetic nephropathy accounts for most of the excess mortality in individuals with diabetes, but the molecular mechanisms by which nephropathy develops are largely unknown. Here we tested cytosine methylation levels at 397,063 genomic CpG sites for association with decline in the estimated glomerular filtration rate (eGFR) over a six year period in 181 diabetic Pima Indians. Methylation levels at 77 sites showed significant association with eGFR decline after correction for multiple comparisons. A model including methylation level at two probes (cg25799291 and cg22253401) improved prediction of eGFR decline in addition to baseline eGFR and the albumin to creatinine ratio with the percent of variance explained significantly improving from 23.1% to 42.2%. Cg22253401 was also significantly associated with eGFR decline in a case-control study derived from the Chronic Renal Insufficiency Cohort. Probes at which methylation significantly associated with eGFR decline were localized to gene regulatory regions and enriched for genes with metabolic functions and apoptosis. Three of the 77 probes that were associated with eGFR decline in blood samples showed directionally consistent and significant association with fibrosis in microdissected human kidney tissue, after correction for multiple comparisons. Thus, cytosine methylation levels may provide biomarkers of disease progression in diabetic nephropathy and epigenetic variations contribute to the development of diabetic kidney disease.