Diabetic kidney disease (DKD) is the leading cause of end-stage kidney disease in the United States and the world alike, and there is a great unmet need for treatments to reduce DKD development and progression. Inhibition of sodium/glucose co-transporter 2 (SGLT2) in the proximal tubule of the kidney has emerged as an effective antihyperglycemic treatment, leading to regulatory approval of several first-generation SGLT2 inhibitors for the treatment of type 2 diabetes. In follow-on clinical trials for the cardiovascular safety of the SGLT2 inhibitors, secondary effects to prevent or reduce albuminuria and decline in estimated glomerular filtration rate spurred further investigation into their potential application in DKD. This review summarizes the current understanding of mechanisms by which SGLT2 inhibitors block glucose reabsorption in the proximal tubule and improve systemic glucose homeostasis, the hypothesized mechanisms for kidney-protective effects of SGLT2 inhibition, and current recommendations for use of this class of antihyperglycemic agents in diabetic patients with low estimated glomerular filtration rates. Results of ongoing clinical trials in patients with DKD are eagerly awaited to expand knowledge of how SGLT2 inhibitors might be used for prevention and treatment.