Background Persons with diabetes are at high risk of developing diabetic kidney disease (DKD), which is associated with high morbidity and mortality. Current drug therapies for DKD, such as angiotensin-converting enzyme inhibitors (ACEIs) and angiotensin receptor blockers (ARBs), are not entirely satisfactory. This study aimed to evaluate the additional benefit and safety of the Chinese herbal granule Tangshen Formula (TSF) in treating DKD. Methods The study was designed as a six-center randomized, double-blind, placebo-controlled trial. From April 2007 through December 2009, 180 patients with DKD were enrolled. In addition to conventional treatment with ACEIs or ARBs, 122 participants were randomly assigned to receive TSF and 58 participants to receive placebo for 24 weeks. Primary outcome was urinary protein level, measured by urinary albumin excretion rate (UAER) for participants with microalbuminuria, 24-hour urinary protein (24h UP) for participants with macroalbuminuria. Secondary outcomes included renal function, serum lipids, quality of life, symptoms, and adverse events. Findings After 24 weeks of treatment, no statistically significant difference in UAER (TSF -19.53 mu g/min compared with placebo -7.01 mu g/min, with a mean difference of -12.52 mu g/min; 95% CI, -68.67 to 43.63, P = 0.696) was found between TSF and placebo groups. However, TSF displayed a statistically significant decrease in 24h UP (TSF-0.21 g compared with placebo 0.36 g, with a mean difference of -0.57g; 95% CI, -1.05 to -0.09, P = 0.024). Estimated glomerular filtration rate (eGFR) was improved in both patients with microalbuminuria and macroalbuminuria, with a mean difference of 15.51 ml/min/1.73m(2) (95% CI, 3.71 to 27.31), 9.01ml/min/1.73 m(2) (95% CI, -0.10 to 18.13), respectively. Other secondary outcomes showed no statistically significant difference between groups or in the incidence of adverse events. Conclusions Based on conventional treatments, TSF appears to provide additional benefits compared with placebo in decreasing proteinuria and improving eGFR in DKD patients with macroalbuminuria. Nevertheless, further study is needed to evaluate TSF treating patients with microalbuminuria.