Neutrophil gelatinase-associated lipoprotein (NGAL) represents a novel biomarker for early identification of acute kidney injury. This study evaluates the usefulness of urine NGAL as a marker for the early detection of diabetic nephropathy. This is a cross-sectional study which involved ninety patients with diabetes mellitus and thirty healthy controls. The diabetic patients were categorized into three groups based on their urine albumin/creatinine ratio (UACR); normoalbuminuria (<3.5 mg/mmol), microalbuminuria (3.5–35 mg/mmol), macroalbuminuria (>35 mg/mmol). In addition to urine NGAL, HbA1C, serum creatinine, urine albumin/creatinine ratio, serum cystatin C, and urine protein were assessed to determine their correlation with urine NGAL. Data analysis was done by using SPSS and MiniTab. Urine NGAL was elevated in all groups of diabetic patients with respect to controls. It was increased proportionately to the severity of kidney function. It was also elevated in some normoalbuminuria diabetic patients. Analysis of correlation revealed that urine NGAL was not correlated with glycemic indices (HbA1C and fasting blood glucose). However, urine NGAL correlated significantly with cystatin C, serum creatinine, urine albumin/creatinine ratio, and inversely with eGFR. Besides, it is also shown to have a significant correlation with eGFR in advanced kidney disease (eGFR < 30 ml/min per 1.73 min2). Urine NGAL can be used as a non-invasive tool for the early detection and assessment of the severity of diabetic nephropathy.