Diabetic nephropathy (DN) is a common microvascular complication of diabetes mellitus (DM), which can lead to renal failure in diabetic patients. At present, the first-line drugs for DN are mainly the renin–angiotensin system (RAS) inhibitors or angiotensin receptor blockers, and the latest approved aldosterone receptor antagonist finerenone, which delay the progression of DN to end-stage renal disease (ESRD), but the therapeutic effect is still not ideal. With a history of thousands of years, traditional Chinese medicine (TCM) has rich experience in the treatment of DN. Based on the theory of TCM, the clinical treatment of DN mainly focuses on generating fluid and nourishing blood, nourishing Qi and Yin, detoxifying and detumescent. In recently years, the therapeutic effects and mechanisms of TCM prescription, Chinese herbal medicine, and its active components on DN have received extensive attention in new drug development. This paper reviews the research progress of the mechanism of TCM on DN.