Objective To determine whether hormone replacement therapy can reverse established renal microvascular damage in type 2 diabetes and hypertension.Design Prospective, single centre clinical trial.Setting Outpatient clinics.Participants Sixteen diabetic and hypertensive postmenopausal women (age 47–57 years)Methods Administration of a cyclic combination of oestradiol and norgestrel orally for 3.5 monthly cycles.Results Comparing the baseline values, mean (SD) 24‐hour urine protein excretion was reduced from 0.452 g (0.039) to 0.370 g (0.047) (P < 0.01) and creatinine clearance was increased from 1.68 mL/sec (0.11) to 1.77 mL/sec (0.08) (P < 0.05). Fasting plasma glucose also improved from 6.92 mmol/L (0.47) to 6.51 mmol/L (0.28) (P < 0.05), as did serum total cholesterol from 7.26 mmol/L (0.28) to 6.65 mmol/L (0.14) (P < 0.05). Blood pressure did not change significantly. Univariate linear regression analysis showed no significant correlation between the individual changes in blood pressure, fasting plasma glucose or serum cholesterol and the individual changes in proteinuria or creatinine clearance.Conclusions This study shows that hormone replacement therapy may reduce proteinuria, and even improve creatinine clearance, in diabetic and hypertensive postmenopausal women. These effects are additive to nephroprotective therapy, and the mechanisms appear unrelated to conventional risk factors for vascular complications, such as high blood pressure, elevated plasma glucose or serum cholesterol.