Qidan Dihuang decoction (QDD) is the latest development of Chinese medicine compound and mainly provides renal protection. The study presented was designed to evaluate the renoprotective effects of QDD on streptozotocin-induced diabetes and to explore the possible mechanisms of this action. We established a diabetes rat model. The condition of the rats was observed. The biochemistry indexes for diabetic rats were examined. Renal tissues were stained with HE, PAS, and Masson and we performed immunohistochemical staining for α-SMA and TGF-β. The proteins expressions of α-SMA, TGF-β, renin, and AT1 were detected by western blot. After treatment for 8 weeks, serum creatinine and 24 h proteinuria were significantly reduced in the rats which received losartan and Qidan Dihuang decoction while blood glucose, urine volume, blood urea nitrogen, and KW/BW did not improve. The pathology of renal tissue of rats treated with losartan and Qidan Dihuang decoction was inhibited. In addition, western blot showed that the expression of α-SMA, TGF-β, renin, and AT1 proteins was significantly decreased after receiving Qidan Dihuang decoction and losartan. Taken together, the results indicate that Qidan Dihuang decoction can improve the renal function and inhibit renal fibrosis of DN rat via modulating RAS system.