Chronic hyperglycemia is known to disrupt the proteolytic milieu, initiating compensatory and maladaptive pathways in the diabetic kidney. Such changes in intrarenal proteolysis can be captured in the urinary peptidome. We thus examined the urinary peptidomes of otherwise healthy youths with type 1 diabetes and their non-diabetic peers. This cross-sectional study included two separate cohorts for the discovery (N = 30) and initial validation (N = 30) of differential peptide excretion. Peptide bioactivity was predicted using PeptideRanker and subsequently verified in vitro. Proteasix and the Nephroseq database were used to identify putative proteases responsible for peptide generation and examine their expression in diabetic nephropathy. A total of 6550 urinary peptides were identified in the discovery analysis. Of the 15 differentially excreted peptides (P < 0.05), seven derived from a small region (589SGSVIDQSRVLNLGPITRK607) near the C-terminus of uromodulin. Excretion rates of five uromodulin peptides were validated using parallel reaction monitoring (P < 0.05). One of the validated peptides activated TLR4-dependent NFκB signalling, stimulated cytokine release, and enhanced neutrophil migration in vitro. In silico analyses identified several possible proteases such hepsin, cathepsin B, and meprin A to be responsible for generating these peptides. In summary, uromodulin processing in the kidney produces bioactive peptides, which may be differentially excreted in early diabetes.