Angiotensin converting enzyme (ACE) is a key enzyme in the renin angiotensin system (RAS) and converts angiotensin (Ang) I to the vasoconstrictor Ang II, which is thought to be responsible for most of the physiological and pathophysiological effects of the RAS. This classical view of the RAS was challenged with the discovery of the enzyme, ACE2 which both degrades Ang II and leads to formation of the vasodilatory and anti-proliferative peptide, Ang 1-7. Activation of the RAS is a major contributor to diabetic complications, and blockade of the vasoconstrictor and hypertrophic actions of Ang II, slows but does not prevent the progression of such complications. The identification of ACE2 in the heart and kidney adds further complexity to the RAS, provides the rationale to explore the role of this enzyme in pathophysiological states, including the microvascular and macrovascular complications of diabetes. It is believed that ACE2 acts in a counter-regulatory manner to ACE to modulate the balance between vasoconstrictors and vasodilators within the heart and kidney, and may thus play a significant role in the pathophysiology of cardiac and renal disease. Relatively little is known about ACE2 in diabetes, and this review will explore and discuss the data that is currently available. The discovery of ACE2 presents a novel opportunity to develop drugs that specifically influence ACE2 activity and/or expression, and it is possible that such compounds may have considerable clinical value in the prevention and treatment of the complications of diabetes.