Diabetic kidney disease (DKD) is a devastating and frequent complication of diabetes mellitus. Here, we first adopted methylenetetrahytrofolate reductase (MTHFR) gene C677T polymorphism as an instrument to infer the possible causal relevance between circulating homocysteine and DKD risk in a Chinese population and next attempted to build a risk prediction model for DKD. This is a hospital-based case-control association study. Total 1107 study participants were diagnosed with type 2 diabetes mellitus, including 547 patients with newly diagnosed and histologically confirmed DKD. MTHFR gene C677T polymorphism was determined using the TaqMan method. Carriers of 677TT genotype (14.55 mu mol/L) had significantly higher homocysteine concentrations than carriers of 677CT genotype (12.88 mu mol/L) (P = 0.001). Carriers of 677TT genotype had a 1.57-fold increased risk of DKD (odds ratio: 1.57, 95% CI: 1.21-2.05, P = 0.001) relative to carriers of 677CT genotype after adjusting for confounders. Mendelian randomization analysis revealed that the odds ratio for DKD relative to diabetes mellitus per 5 mol/L increment of circulating homocysteine concentrations was 3.86 (95% confidence interval: 1.21-2.05, P < 0.001). In the Logistic regression analysis, hypertension, homocysteine and triglyceride were significantly associated with an increased risk of DKD and they constituted a risk prediction model with good test performance and discriminatory capacity. Taken together, our findings provide evidence that elevated circulating homocysteine concentrations were causally associated with an increased risk of DKD in Chinese diabetic patients.