Diabetes mellitus is a common metabolic disease and the prevalence is increasing rapidly. Thyroid disorders including subclinical hypothyroidism (SCH) and low triiodothyronine (T3) syndrome are frequently observed in diabetic patients. We conducted a study to explore thyroid function in patients with type 2 diabetes mellitus (T2DM) and diabetic nephropathy (DN). We included 103 healthy volunteers, 100 T2DM patients without DN, and 139 with DN. Physical examinations including body mass index and blood pressure and laboratory measurements including renal function, thyroid function, and glycosylated haemoglobin were conducted. Patients with DN had higher thyroid stimulating hormone (TSH) levels and lower free T3 (FT3) levels than those without DN (p < 0.01). The prevalence of SCH and low FT3 syndrome in patients with DN was 10.8% and 20.9%, respectively, higher than that of controls and patients without DN (p < 0.05). Through Pearson correlation or Spearman rank correlation analysis, in patients with DN, there were positive correlations in TSH with serum creatinine (r = 0.363, p = 0.013) and urinary albumin-to-creatinine ratio (r = 0.337, p = 0.004), and in FT3 with estimated glomerular filtration rate (eGFR) with statistical significance (r = 0.560, p < 0.001). Conclusions. High level of TSH and low level of FT3 were observed in T2DM patients with DN. Routine monitoring of thyroid function in patients with DN is necessary, and management of thyroid dysfunction may be a potential therapeutic strategy of DN.