Diabetes mellitus (DM), a kind of metabolic disease, is increasing over the last four decades in the world. The purpose of this study was to investigate the effect of Jiang Tang Xiao Ke (JTXK) granule, a naturally occurring ingredient from Chinese herbal medicines, on serum glucose, lipids, and oxidative stress in DM rats induced by high-fat diet and streptozotocin. JTXK granule 9 g/kg (based on crude herb equivalent) and pioglitazone 1.5 mg/kg (as a positive control for comparison) were orally administrated to DM rats for 4 weeks. Results showed that administration of JTXK granule reduced serum glucose, total cholesterol, triglyceride, and low density lipoprotein levels (by 12%, 33%, 57%, and 44%, resp.) but increased high-density lipoprotein level by 69%, compared with the drug-untreated DM rats. Serum malondialdehyde and nitric oxide levels were lowered (by 34% and 52%, resp.) associated with the elevation in serum superoxide dismutase levels (by 60%) after JTXK granule treatment. In addition, JTXK granule suppressed serum alanine aminotransferase activity (up to 50%) and alleviated pathological changes of pancreas and liver tissues in DM rats. The beneficial changes of pioglitazone on biomarkers were also found in DM rats. These findings suggested that JTXK granule may be an alternative medicine for the management of DM.