Diabetic kidney disease (DKD) is recognized as an important public health challenge. However, its genomic mechanisms are poorly understood. To identify rare variants for DKD, we conducted a whole-exome sequencing (WES) study leveraging large cohorts well-phenotyped for chronic kidney disease and diabetes. Our two-stage WES study included 4372 European and African ancestry participants from the Chronic Renal Insufficiency Cohort and Atherosclerosis Risk in Communities studies (stage 1) and 11 487 multi-ancestry Trans-Omics for Precision Medicine participants (stage 2). Generalized linear mixed models, which accounted for genetic relatedness and adjusted for age, sex and ancestry, were used to test associations between single variants and DKD. Gene-based aggregate rare variant analyses were conducted using an optimized sequence kernel association test implemented within our mixed model framework. We identified four novel exome-wide significant DKD-related loci through initiating diabetes. In single-variant analyses, participants carrying a rare, in-frame insertion in the DIS3L2 gene (rs141560952) exhibited a 193-fold increased odds [95% confidence interval (CI): 33.6, 1105] of DKD compared with noncarriers (P = 3.59 × 10-9). Likewise, each copy of a low-frequency KRT6B splice-site variant (rs425827) conferred a 5.31-fold higher odds (95% CI: 3.06, 9.21) of DKD (P = 2.72 × 10-9). Aggregate gene-based analyses further identified ERAP2 (P = 4.03 × 10-8) and NPEPPS (P = 1.51 × 10-7), which are both expressed in the kidney and implicated in renin-angiotensin-aldosterone system modulated immune response. In the largest WES study of DKD, we identified novel rare variant loci attaining exome-wide significance. These findings provide new insights into the molecular mechanisms underlying DKD.