Hu-Lu-Ba-Wan (HLBW) is a Chinese herbal prescription used to treat kidney deficiency. The aim of this study was to explore the effect and mechanism of HLBW on diabetic nephropathy (DN) in type 2 diabetic rats. The rat model of DN was established by being fed a high-fat diet and intravenous injection of streptozotocin. Then, HLBW decoction was administered for 16 weeks. Blood glucose level, lipid profile, renal function, 24-hour total urinary protein, and albumin content were examined. Renal morphology and superoxide anion levels were evaluated. The activity of nicotinamide-adenine dinucleotide phosphate (NADPH) and protein kinase C-alpha (PKC-alpha) related genes expression in renal tissue were also determined. Our data demonstrated that HLBW significantly improved hyperglycemia, hyperlipidemia, and proteinuria in diabetic rats compared with those of control group. HLBW also alleviated glomerular expansion and fibrosis, extracellular matrix accumulation and effacement of the foot processes. Additionally, HLBW reduced superoxide anion level, NADPH oxidase activity, the protein and mRNA expressions of p47(phox), and the protein expression of phosphorylated PKC-alpha in renal tissue. These results suggest that HLBW is effective in the treatment of DN in rats. The underlying mechanism may be related to the attenuation of renal oxidative stress via PKC-alpha/NADPH oxidase signaling pathway.