Diabetic kidney disease (DKD), accompanied by chronic low-grade inflammation, is one of the most common complications of diabetes. Armillariella tabescens has potent anti-inflammatory and immunomodulatory properties. The purpose of the present study was to investigate the effects of polysaccharides from Armillariella tabescens mycelia (AT) on the kidney in type 2 diabetic mice and explore the underlying mechanism. The mice were randomized into 4 groups: normal control (NC), diabetic control (DC), DC + 200 mg/kg AT (LAT), and DC + 400 mg/kg AT (HAT). The results showed that compared with the NC group, the levels of fasting blood glucose, renal function-related indices, and serum pro-inflammatory mediators including lipopolysaccharide (LPS), interleukin (IL)-1β, and IL-18 were elevated; the renal morphopathological alterations, oxidative stress, and nucleotide-binding oligomerization domain-like receptor protein 3 inflammasome-mediated inflammation and renal fibrosis were aggravated; the intestinal microbiota dysbiosis and colonic inflammation and barrier dysfunction were deteriorated in the DC group. After supplementation with AT, the aforementioned indices were ameliorated in the AT treatment groups, especially in the HAT group. In conclusion, these results demonstrated that modulating the intestinal microbiota and inflammatory reaction was implicated in the effects of AT against DKD in mice.