The small GTPase Rho and its effector Rho-kinase are involved in the pathogenesis of diabetic nephropathy. Accumulating evidence shows that hypoxia-inducible factor-1α (HIF-1α) is a key regulator of renal sclerosis under diabetic conditions. However, the interactions of Rho-kinase and HIF-1α in the development of renal dysfunction have not been defined. Here, we assessed whether Rho-kinase blockade attenuates HIF-1α induction and the subsequent fibrotic response using type 2 diabetic mice and cultured mesangial cells. Fasudil, a Rho-kinase inhibitor, reduced urinary albumin excretion, mesangial matrix expansion, and the expression of fibrotic mediators in db/db mice. Mechanistically, HIF-1α accumulation and the expression of its target genes that contribute to diabetic glomerulosclerosis were also prevented by fasudil in the renal cortex. In mesangial cells, Rho/Rho-kinase signaling was activated under hypoxic conditions. Further in vitro studies showed that pharmacological and genetic inhibition of Rho-kinase promoted proteasomal HIF-1α degradation, which subsequently suppressed HIF-1-dependent profibrotic gene expression by upregulation of prolyl hydroxylase 2. Thus, we found a previously unrecognized renoprotective mechanism for the effects of Rho-kinase inhibition and this could be a potential therapeutic target for the treatment of diabetic nephropathy.