Cordyceps militaris has long been used as a crude drug and folk tonic food in East Asia. The present study aims to evaluate the antidiabetic and antinephritic effects of the aqueous extract of the Cordyceps militaris fruit body (CM) in diet-streptozotocin- (STZ-) induced diabetic rats. During four weeks of continuous oral administration of CM at doses of 0.5, 1.0, and 2.0 g/kg and metformin at 100 mg/kg, the fasting blood glucose and bodyweight of each rat were monitored. Hypoglycemic effects of CM on diabetic rats were indicated by decreases in plasma glucose, food and water intake, and urine output. The hypolipidemic activity of CM was confirmed by the normalization of total cholesterol, triglycerides, and low- and high-density lipoprotein cholesterol in diabetic rats. Inhibitory effects on albuminuria, creatinine, urea nitrogen, and n-acetyl-β-d-glucosaminidase verified CM’s renal protective activity in diabetic rats. Furthermore, CM exerted beneficial modulation of inflammatory factors and oxidative enzymes. Compared with untreated diabetic rats, CM decreased the expression of phosphor-AKT and phosphor-GSK-3β in the kidneys. Altogether, via attenuating oxidative stress, CM displayed antidiabetic and antinephritic activities in diet-STZ-induced diabetic rats.