Aim: Sodium‐glucose cotransporter 2 (SGLT2) inhibitors often cause a transient decrease in glomerular filtration rate (GFR) shortly after the initiation, referred to as the 'initial drop'. However, the clinical significance of this initial drop in real‐world practice remains unclear. Materials and Methods: Using the nationwide Japan Chronic Kidney Disease Database, we examined factors that affected the initial drop, in patients with chronic kidney disease (CKD) and type 2 diabetes mellitus (T2DM). We also evaluated the effects of the initial drop on a composite kidney outcome (a decline in GFR of ≥50% or progression to end‐stage kidney disease). Results: Data from 2053 patients with CKD and T2DM newly prescribed an SGLT2 inhibitor were analysed. The follow‐up period after SGLT2 inhibitor administration was 1015 days (interquartile range: 532, 1678). Multivariate linear regression models revealed that the concomitant use of the renin‐angiotensin system inhibitors and diuretics, urinary protein levels ≥2+, and changes in GFR before the initiation of the SGLT2 inhibitor were associated with a larger initial GFR decline (β = −0.609, p =.039; β = −2.298, p <.001; β = −0.936, p =.048; β = −0.079, p <.001, respectively). Patients in the quartile with the largest initial GFR decline experienced a higher incidence of the subsequent composite kidney outcome than those in the other quartiles (p <.001). Conclusions: The concomitant use of renin‐angiotensin system inhibitors and diuretics, higher urine protein levels and pre‐treatment GFR changes were associated with a larger initial GFR decline. Of these factors, the use of a diuretic had the largest effect. Furthermore, patients with CKD and T2DM experiencing an excessive initial GFR drop might be at a higher risk of adverse kidney outcomes. [ABSTRACT FROM AUTHOR]