Pancreastatin (PST) is an endogenous peptide which regulates glucose and lipid metabolism in liver and adipose tissues. In type 2 diabetic patients, PST level is high and plays a crucial role in the negative regulation of insulin sensitivity. Novel therapeutic agents are needed to treat the diabetes and insulin resistance (IR) against the PST action. In this regard, we have investigated the PST inhibitor peptide-8 (PSTi8) action against diabetogenic PST. PSTi8 rescued PST-induced IR in HepG2 and 3T3L1 cells. PSTi8 increases the GLUT4 translocation to cell surface to promote glucose uptake in L6-GLUT4myc cells. PSTi8 treatment showed an increase in insulin sensitivity in db/db, high fat and fructose fed streptozotocin (STZ) induced IR mice. PSTi8 improved the glucose homeostasis which is comparable to metformin in diabetic mice, characterized by elevated glucose clearance, enhanced glycogenesis, enhanced glycolysis and reduced gluconeogenesis. PST and PSTi8 both were docked to the GRP78 inhibitor binding site in protein-protein docking, GRP78 expression and its ATPase activity studies. The mechanism of action of PSTi8 may be mediated by activating IRS1/2-phosphatidylinositol-3-kinase-AKT (FoxO1, Srebp-1c) signaling pathway. The discovery of PSTi8 provides a promising therapeutic agent for the treatment of metabolic diseases mainly diabetes.