Endoplasmic reticulum (ER) stress is associated with diabetic nephropathy (DN), but its pathophysiological relevance and the mechanisms that compromise adaptive ER signalling in podocytes remain unknown. Here we show that nuclear translocation of the transcription factor spliced X-box binding protein-1 (sXBP1) is selectively impaired in DN, inducing activating transcription factor-6 (ATF6) and C/EBP homology protein (CHOP). Podocyte-specific genetic ablation of XBP1 or inducible expression of ATF6 in mice aggravates DN. sXBP1 lies downstream of insulin signalling and attenuating podocyte insulin signalling by genetic ablation of the insulin receptor or the regulatory subunits phosphatidylinositol 3-kinase (PI3K) p85α or p85Π2 impairs sXBP1 nuclear translocation and exacerbates DN. Corroborating our findings from murine DN, the interaction of sXBP1 with p85α and p85Π2 is markedly impaired in the glomerular compartment of human DN. Thus, signalling via the insulin receptor, p85, and XBP1 maintains podocyte homeostasis, while disruption of this pathway impairs podocyte function in DN.