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Diabetes mellitus (DM) commonly leads to progressive chronic kidney disease despite current best medical practice. The pathogenesis of diabetic kidney disease (DKD) involves a complex network of primary and secondary mechanisms with both intra-renal and systemic components. Apart from inhibition of the renin angiotensin aldosterone system, targeting individual pathogenic mediators with drug therapy has not, thus far, been proven to have high clinical value. Stem or progenitor cell therapies offer an alternative strategy for modulating complex disease processes through suppressing multiple pathogenic pathways and promoting pro-regenerative mechanisms. Mesenchymal stem cells (MSCs) have shown particular promise based on their accessibility from adult tissues and their diverse mechanisms of action including secretion of paracrine anti-inflammatory and cyto-protective factors. In this review, the progress toward clinical translation of MSC therapy for DKD is critically evaluated. Results from animal models suggest distinct potential for systemic MSC infusion to favourably modulate DKD progression. However, only a few early phase clinical trials have been initiated and efficacy in humans remains to be proven. Key knowledge gaps and research opportunities exist in this field. These include the need to gain greater understanding of in vivo mechanism of action, to identify quantifiable biomarkers of response to therapy and to define the optimal source, dose and timing of MSC administration. Given the rising prevalence of DM and DKD worldwide, continued progress toward harnessing the inherent regenerative functions of MSCs and other progenitor cells for even a subset of those affected has potential for profound societal benefits.