Type 2 diabetes mellitus (T2DM) is an alarming health care concern the world over affecting more-than 220 million people worldwide according to World Health Organization. Kidney disease in diabetic patients is clinically characterized by increasing rates of urinary albumin excretion (UAE), starting from normoalbuminuria, which progresses to microalbuminuria, macroalbuminuria and eventually to End-Stage Renal Disease. Diabetic nephropathy has been categorized into stages based on the values of urinary albumin excretion and estimated glomerular filtration (eGFR). There is accumulating evidence suggesting that the risk for developing diabetes nephropathy and cardiovascular disease starts when UAE values are still within normoalbuminic range. Objective: To study the prevalence and stages of nephropathy in T2DM patients and to compare albumin levels with glycemic control in rural population. Methodology: Cross-sectional study was carried out from January 2011 to April 2012 among diabetic patients attending General Medicine department in RL Jalappa Hospital. Random blood sample and spot urine sample was collected for analysis and the data was collected in a predesigned, pretested semi-structured questionnaire. Results: The prevalence of diabetic nephropathy in our study was 37.02%. The prevalence microalbuminuria was 30.79% in males and 24.46% in females. The prevalence of overt nephropathy was 9.27% in males and 6.73% in females. Around 62.97% were in microalbuminuric range. 75.76% of the patients had poor glycemic control, but among patients with poor glycemic control 79.78% had overt nephropathy and 86.80% had microalbuminuria. Among patients with good glycemic control 20.28% had overt nephropathy and 13.19% had microalbuminuria. Conclusion: Microalbuminuria was earliest sign in Diabetic Nephropathy (DN). Progression of DN can be prevented on early detection. Poor glycemic control and duration of diabetes was associated with increase in UAE level and progression of Chronic Kidney Disease. Screening for DN at the time of diagnosis in T2DM and measures to reduce albuminuria at earliest could prevent further progression of DN in patients with T2D