Autoimmune destruction of insulin producing pancreatic β-cells leads to insulin insufficiency and hyperglycemia in type 1 diabetes mellitus. Regeneration of β-cells is one of the proposed treatment for type 1 diabetes and insulin insufficiency. Picrorhiza kurroa is a medicinal herb and is traditionally being used for the treatment of various diseases. Previous studies reported the hypoglycemic potential of P. kurroa. However, its potential role in β-cell induction in insulin secretion have not been fully investigated. Here, we characterized the hydro alcoholic extract of P. kurroa rhizome (PKRE) and further studied its β-cell regeneration and induction of insulin secretion potential in streptozotocin (STZ) induced diabetic rats as well as in insulin producing Rin5f cells. 1H-NMR revealed the presence of more than thirty metabolites including picroside I and II in PKRE. Further, we found that PKRE treatment (100 and 200 mg/kg dose for 30 days) significantly (p ≤ 0.05) protected the pancreatic β-cells against streptozotocin (STZ) evoked damage and inhibited the glucagon receptor expression (Gcgr) in hepatic and renal tissues. It significantly (p ≤ 0.05) enhanced the insulin expression and aids in proliferation of insulin producing Rin5f cells with elevated insulin secretion. Furthermore it significantly (p ≤ 0.05) increased insulin mediated glucose uptake in 3T3L1 and L6 cells. On the contrary, in diabetic rats, PKRE significantly (p ≤ 0.05) decreased high blood glucose and restored the normal levels of serum biochemicals. Altogether, our results showed that PKRE displayed β-cell regeneration with enhanced insulin production and antihyperglycemic effects. PKRE also improves hepatic and renal functions against oxidative damage.