Objective Urine liver-type fatty acid binding protein (L-FABP) is emerging as an excellent biomarker for the early prediction of acute and chronic kidney injury. The aim of this prospective study was to determine the value of urine L-FABP in predicting the progression of nephropathy and the decline of estimated glomerular filtration rate (eGFR) in type 2 diabetic patients. Methods A longitudinal cohort study was conducted on 288 type 2 diabetic patients for 2 consecutive years, who were admitted to Department of Endocrinology of our hospital during January 2010 to June 2012. They were divided into normo-, micro- and macro-albuminuria groups according to their 24h-urinary albumin excreting rate (UAER). Urine levels of L-FABP, and UAER were determined. Results The follow-up levels of urinary L-FABP in both the micro- and macro-albuminuria groups were significantly higher than their baseline levels (P＜0.05), but only the macro-albuminuria group had the level of UAER higher than its baseline (P＜0.05). The results of Pearson correlations showed that urine L-FABP was correlated with UAER in the micro- and macro-albuminuria groups at both before and after follow-up (before: r＝0.573, r＝0.219, P＜0.05; after: r＝0.689, r＝0.203, P＜0.05). Multivariate stepwise regression analysis indicated that the urinary L-FABP levels before and after follow-up were significantly correlated with eGFR decline rate in both the macro- and micro-albuminuria groups (macro-albuminuria group: β＝-0.397, t＝-4.376, β＝-0.455, t＝-4.854, P＜0.05; micro-albuminuria group: β＝-0.327, t＝-2.987, β＝-0.378, t＝-4.298, P＜0.05). Conclusion Urine L-FABP is correlated with renal function in the patients with type 2 diabetes mellitus, and its dynamic monitoring may predict the progression of diabetic nephropathy. Urine L-FABP may independently predict the early decline of eGFR in type 2 diabetic nephropathy patients.