Obesity has been posited as an independent risk factor for diabetic kidney disease (DKD), but establishing causality from observational data is problematic. We aimed to test whether obesity is causally related to DKD using Mendelian randomization, which exploits the random assortment of genes during meiosis. In 6,049 subjects with type 1 diabetes, we used a weighted genetic risk score (GRS) comprised of 32 validated BMI loci as an instrument to test the relationship of BMI with macroalbuminuria, end-stage renal disease (ESRD), or DKD defined as presence of macroalbuminuria or ESRD. We compared these results with cross-sectional and longitudinal observational associations. Longitudinal analysis demonstrated a U-shaped relationship of BMI with development of macroalbuminuria, ESRD, or DKD over time. Cross-sectional observational analysis showed no association with overall DKD, higher odds of macroalbuminuria (for every 1 kg/m² higher BMI, odds ratio [OR] 1.05, 95% CI 1.03–1.07, P < 0.001), and lower odds of ESRD (OR 0.95, 95% CI 0.93–0.97, P < 0.001). Mendelian randomization analysis showed a 1 kg/m² higher BMI conferring an increased risk in macroalbuminuria (OR 1.28, 95% CI 1.11–1.45, P = 0.001), ESRD (OR 1.43, 95% CI 1.20–1.72, P < 0.001), and DKD (OR 1.33, 95% CI 1.17–1.51, P < 0.001). Our results provide genetic evidence for a causal link between obesity and DKD in type 1 diabetes. As obesity prevalence rises, this finding predicts an increase in DKD prevalence unless intervention should occur.