In early diabetic renal injury, there is podocyte drop-out (but no decrease in the number of other glomerular cells) which is thought to cause glomerular proteinuria and subsequent diabetic glomerular injury. We tested the hypothesis that early diabetic podocyte injury is caused, in part, by downregulation of bone morphogenetic protein-7 (BMP7) and loss of its autocrine function in murine podocytes. High glucose (HG; 25 mM) induces rounding of differentiated podocytes and changes in the distribution of F-actin but without quantitative changes in E-cadherin and the podocyte markers podocin, CD2AP, Neph1, or synaptopodin. HG reduces BMP7 secretion and activity but does not affect BMP receptor levels in murine podocytes. In these cells, BMP7 effectively activates smad5 (but not smad1) and raises p38 phosphorylation [which is also increased by transforming growth factor-β (TGF-β)]. HG as well as TGF-β raise caspase-3 activity, increase apoptosis, and reduce cell survival which is, in part, blocked by BMP7. Knockdown and forced expression studies indicate that smad5 is required as well as sufficient for these actions of BMP7. These findings indicate that BMP7 is a differentiation and survival factor for podocytes, requires smad5, and can reduce diabetic podocyte injury.