Renal inflammation is a pivotal mechanism underlying the pathophysiology of diabetic nephropathy (DN). The Src homology phosphatase 2 (SHP2) has been demonstrated to be linked to diabetes-induced inflammation, yet its roles and explicit molecular mechanisms in DN remain unexplored. Here, we report that SHP2 activity is upregulated in both DN patients and db/db mice. In addition, pharmacological inhibition of SHP2 with its specific inhibitor PHPS1 alleviates DN in db/db mice and attenuates renal inflammation. In vitro, PHPS1 administration prevents inflammatory responses in HK-2 cells stimulated by high glucose (HG). Mechanistically, PHPS1 represses HG-induced activation of the proinflammatory ERK/NF-κB signaling pathway, and these inhibitory effects are blocked in the presence of an ERK specific inhibitor, hence demonstrating that PHPS1 suppresses ERK/NF-κB pathway-mediated inflammation. Moreover, PHPS1 retards ERK/NF-κB pathway activation in db/db mice, and histologically, SHP2 activity is positively correlated with ERK/NF-κB activation in DN patients. Taken together, these findings identify SHP2 as a potential therapeutic target and show that its pharmacological inhibition might be a promising strategy to mitigate DN. Video Abstract.