Mitochondrial reactive oxygen species (ROS) play an important role in diabetes complications, including diabetic nephropathy (DN). Plasma free fatty acids (FFAs) as well as glucose are increased in diabetes, and peroxisomes and mitochondria participate in FFA oxidation in an interconnected fashion. Therefore, we investigated whether deficiency of catalase, a major peroxisomal antioxidant, accelerates DN through peroxisomal dysfunction and abnormal renal FFA metabolism. Diabetes was induced by multiple injections of low-dose streptozotocin into catalase knock-out (CKO) and wild-type (WT) C57BL/6 mice. Murine mesangial cells (MMCs) transfected with catalase small interfering RNA followed by catalase overexpression were used to further elucidate the role of endogenous catalase. Despite equivalent hyperglycemia, parameters of DN, along with markers of oxidative stress, were more accelerated in diabetic CKO mice than in diabetic WT mice up to 10 weeks of diabetes. CKO mice and MMCs showed impaired peroxisomal/mitochondrial biogenesis and FFA oxidation. Catalase deficiency increased mitochondrial ROS and fibronectin expression in response to FFAs, which were effectively restored by catalase overexpression or N-acetylcysteine. These data provide unprecedented evidence that FFA-induced peroxisomal dysfunction exacerbates DN and that endogenous catalase plays an important role in protecting the kidney from diabetic stress through maintaining peroxisomal and mitochondrial fitness.