Diabetic nephropathy is the leading cause of end-stage renal disease. The urinary albumin to creatinine ratio is used as a predictor for the development of nephropathy but it is neither sensitive nor specific. Here we used liquid chromatography/mass spectrometry on urine of eight normoalbuminuric patients with type 2 diabetes from the VA Diabetes Trial to identify candidate markers for loss of renal function. Initial verification of seven markers (agrin, haptoglobin, mannan-binding lectin serine protease 2, LAMP-2, angiotensinogen, NGAL, and uromodulin) in the urine of an additional 30 patients showed that haptoglobin was the best predictor of early renal functional decline. We then measured this in the urine of 204 patients with type 2 diabetes who did not yet have significant kidney disease (estimated glomerular filtration rate stage 2 or better and an albumin to creatinine ratio <300 mg/g). In comparing the highest to lowest tertiles, the odds ratio for having early renal function decline was 2.70 (CI: 1.15, 6.32) using the haptoglobin to creatinine ratio compared with 2.50 (CI 1.14, 5.48) using the albumin to creatinine ratio after adjusting for treatment group and use of ACE inhibitors. Addition of the haptoglobin to creatinine ratio to a model using the albumin to creatinine ratio to predict early renal function decline resulted in improved predictive performance. Thus, the haptoglobin to creatinine ratio may be useful to predict patients with type 2 diabetes at risk of nephropathy before the development of macroalbuminuria or reduced glomerular filtration rate.