In this study, a diagnostic relation of N0 as a function of rain water content is derived based on Two Dimensional Video Disdrometer (2DVD) measurements. The 2DVD data were collected in Florida during PRECIP'98 project and in Oklahoma for the spring seasons of 2005 and 2006. It is known that observation-derived N0 depends on sampling time and volume as well as the procedure of fitting an exponential distribution. To minimize the effects of error, two middle moments are used to estimate the two exponential DSD parameters: N0 and Λ (the slope parameter in the exponential DSD). Although there is a large scatter in the correlation plot, it is clear that N0 has a good correlation with the rain water content (W) and it increases as the water content increases so that a diagnostic N0-W relation can be derived. The diagnostic relation thus derived is used to parameterize DSD-related warm rain microphysical processes including rain evaporation and accretion. The diagnostic N0-based parameterization scheme is being applied in the Advanced Regional Prediction System (ARPS) model to show its impact on numerical forecasts and data assimilations. The ARPS simulation results suggest that this scheme has two main advantages: (i) it leads to less (more) evaporation for light (heavy) rain, preserving stratiform rain better, and (ii) it yields a larger (smaller) reflectivity factor for light (heavy) rain, leading to a generally better agreement between model forecast and radar observations.