Aim: The objective of the work was to investigate the antidiabetic activity of Diabac (a polyherbal formulation) in streptozotocin-nicotinamide induced type 2 diabetic rats. Methods: Oral glucose tolerance test (OGTT) was performed to evaluate effect of Diabac on elevated glucose level. The type 2 diabetes was induced by overnight fasted rats by a single intraperitoneal (i.p.) injection of 65 mg/kg streptozotocin, 15 min. after the i.p. administration of 110 mg/kg nicotinamide. The diabetic rats were treated with Diabac (250, 500 and 1000 mg/kg, p.o.) or glibenclamide (5 mg/kg, p.o) for four week. Various parameters were studied such as fasting blood sugar level, serum insulin levels, glycated hemoglobin (HbA1C), serum lipid levels, se rum creatinine, urea, uric acid and liver glycogen. Results: Treatment with Diabac significantly reduced the blood sugar levels in OGTT. Diabetic rats showed a significant increase in the levels of glycated hemoglobin, serum lipids, serum creatinine, urea and uric acid, whereas there was a decrease in serum insulin, liver glycogen and HDL-C levels as compared to normal control rats. The administration of Diabac or glibenclamide significantly decreased the levels of glycated hemoglobin, TG, TC, LDL-C, serum creatinine, urea and uric acid, whereas there was an increase in the levels of liver glycogen and HDL-C as compared to diabetic control rats. However, the treatment with Diabac did not show any significant change in serum insulin levels as compared to diabetic control rats. Conclusion: These results of present study concluded that Diabac has anti-diabetic and anti-lipidemic activities which are responsible for its use in traditional medicine.