Gremlin, a cell growth and differentiation factor, promotes the development of diabetic nephropathy in animal models, but whether GREM1 gene variants associate with diabetic nephropathy is unknown. We comprehensively screened the 5' upstream region (including the predicted promoter), all exons, intron-exon boundaries, complete untranslated regions, and the 3' region downstream of the GREM1 gene. We identified 31 unique variants, including 24 with a minor allele frequency exceeding 5%, and 9 haplotype-tagging single nucleotide polymorphisms (htSNPs). We selected one additional variant that we predicted to alter transcription factor binding. We genotyped 709 individuals with type 1 diabetes of whom 267 had nephropathy (cases) and 442 had no evidence of kidney disease (controls). Three individual SNPs significantly associated with nephropathy at the 5% level, and two remained significant after adjustment for multiple testing. Subsequently, we genotyped a replicate population comprising 597 cases and 502 controls: this population supported an association with one of the SNPs (rs1129456; P = 0.0003). Combined analysis, adjusted for recruitment center (n = 8), suggested that the T allele conferred greater odds of nephropathy (OR 1.69; 95% CI 1.36 to 2.11). In summary, the GREM1 variant rs1129456 associates with diabetic nephropathy, perhaps explaining some of the genetic susceptibility to this condition.