Diabetic nephropathy (DN) has been introduced as one of the main microvascular complications in diabetic patients, the most common cause of end-stage renal disease (ESRD). Based on the therapeutic potential of mesenchymal stem cells in tissue repair, we aimed to test the hypothesis that kidney stem cells (KSCs) might be effective in the kidney regeneration process. Stem cells from rat kidney were separated, and the surface stem cell markers were determined by flow cytometry analysis. Thirty-two Sprague Dawley rats were divided into four groups (control, control that received kidney stem cells, diabetic, diabetic treated with stem cells). To establish diabetic, model STZ (streptozotocin) (60 mg/kg) was used. The KSCs were injected into experimental groups via tail vein (2 × 10⁶ cells/rat). In order to determine the impact of stem cells on the function and structure of the kidney, biochemical and histological parameters were measured. Further, the expression of miRNA-29a, miR-192, IL-1β, and TGF-β was determined through the real-time PCR technique. Phosphorylation of Smad2/3 was evaluated by using the standard western blotting. The KSCs significantly reduced blood nitrogen (BUN), serum creatinine (Scr), and 24-h urinary proteins in DN (P < 0.05). IL-1β and TGF-β significantly increased in the kidney of diabetic rats. In addition, the expression of miR-29a is significantly increased, whereas miR-192 decreased after treatment with KSCs (P < 0.05). Diabetic rats showed an increased level of phosphorylation of both Smad2 and Smad3 (P < 0.05). Periodic acid-Schiff (PAS) staining showed improved histopathological changes in the presence of KSCs. Stem cells derived from adult rat kidney may be an option for treating the early DN to improve the functions and structure of kidneys in rats with DN.