Gremlin, a cell growth and differentiation factor, promotes the development of diabetic nephropathy in animal models, but whether GREM1 gene variants associate with diabetic nephropathy is unknown. We comprehensively screened the 5` upstream region (including the predicted promoter), all exons, intron-exon boundaries, complete untranslated regions, and the 3` region downstream of the GREM1 gene. We identified 31 unique variants, including 24 with a minor allele frequency exceeding 5%, and 9 haplotype-tagging single nucleotide polymorphisms (htSNPs). We selected one additional variant that we predicted to alter transcription factor binding. We genotyped 709 individuals with type 1 diabetes of whom 267 had nephropathy (cases) and 442 had no evidence of kidney disease (controls). Three individual SNPs significantly associated with nephropathy at the 5% level, and two remained significant after adjustment for multiple testing. Subsequently, we genotyped a replicate population comprising 597 cases and 502 controls: this population supported an association with one of the SNPs (rs1129456; P = 0.0003). Combined analysis, adjusted for recruitment center (n = 8), suggested that the T allele conferred greater odds of nephropathy (OR 1.69; 95% CI 1.36 to 2.11). In summary, the GREM1 variant rs1129456 associates with diabetic nephropathy, perhaps explaining some of the genetic susceptibility to this condition.