Diabetes-induced renal complications, i.e. diabetes nephropathy, are a major cause of morbidity and mortality. The exact mechanisms mediating the negative influence of hyperglycemia on renal function are unclear, although several hypotheses have been postulated. Cellular mechanisms include glucose-induced excessive formation of reactive oxygen species, increased glucose flux through polyol pathway and pentose phosphate shunt, formation of advanced glycation end-products and activation of protein kinase C and NADPH oxidase. However, the renal effects in vivo of each and every one of these mechanisms are less clear, although recent studies have shown several major alterations predominantly in the renal medulla as a result of sustained hyperglycemia. Already during normal conditions, the renal medulla has a remarkably low oxygen tension (PO2) and a high degree of non-oxygen dependent energy metabolism. Alterations in either blood perfusion or oxygen delivery to the medullary region will have significant effects on both regional metabolism and total kidney function. Recently, sustained hyperglycemia has been shown to induce a pronounced reduction in preferentially renal medullary PO2. This review will present the current knowledge of diabetes-induced alterations in renal medullary metabolism and function, but also discuss future targets for prevention of diabetic nephropathy.