Background/Aim: Diabetic nephropathy contributes substantially to cardiovascular morbidity and mortality associated with diabetes. Urinary tumor necrosis factor (TNF) excretion is increased during diabetes and serves as an important mediator of pathological changes during the initial stages of diabetic nephropathy, including sodium retention and renal hypertrophy. We tested the hypothesis that pentoxifylline (PTF), an agent that inhibits TNF synthesis, could prevent sodium retention and renal hypertrophy during diabetes. Methods: Proximal and distal tubule TNF expression, urinary TNF excretion, sodium retention, and renal hypertrophy were examined in control, diabetic, and PTF-treated diabetic rats. Results: TNF mRNA and protein levels were increased in proximal tubule cells isolated from diabetic rats compared to control rats. In contrast, TNF expression in distal tubule cells was not increased during diabetes. PTF prevented the increase in TNF mRNA and protein in proximal tubule cells during diabetes and reduced urinary TNF excretion. PTF therapy decreased whole animal sodium retention by enhancing urinary sodium excretion in diabetic rats. In addition, PTF reduced renal hypertrophy in diabetic rats. Conclusions: The proximal tubule is an important site of TNF production during diabetes and PTF is an effective therapy for preventing the pathological changes accompanying early diabetic nephropathy.