The purpose of this study was to identify the risk factors responsible for the development of microalbuminuria in diabetes. Two cohorts of 340 Type 1 and 258 Type 2 normotensive diabetic subjects were followed up for 24 months to evaluate progression to nephropathy. Sixteen Type 1 (4.7%) and 20 Type 2 (7.7%) patients developed persistent micro- or macroalbuminuria. Retinopathy, levels of glycated haemoglobin and the urinary albumin excretion rate (UAER) were indicative of progression in both cohorts. Cardiovascular disease in Type 1 and systolic blood pressure in Type 2 diabetes were the other risk factors. Logistic regression analysis showed that glycated haemoglobin levels [odds ratio (95% confidence interval) 2.08 (1.34, 3.21), p = 0.0007 in Type 1 and 1.77 (1.27, 2.45), p = 0.0005 in Type 2] and retinopathy [1.95 (1.09, 3.41), p = 0.02 in Type 1 and 2.87 (1.45, 5.69), p = 0.002 in Type 2] were risk factors in both cohorts. Male sex [2.06 (1.05, 4.03), p = 0.03] and the UAER [1.06 (1.001, 1.13), p = 0.04] in Type 1 patients, and systolic blood pressure [1.66 (1.05, 2.52), p = 0.02] in Type 2, were the other predictors. It is concluded that in normotensive Type 1 and Type 2 diabetic subjects glycemic control and retinopathy are the most important contributors to the development of incipient nephropathy.