Pancreastatin (PST), a chromogranin A (CHGA) derived peptide connects obesity with insulin resistance by inducing inflammation. Previously, we have evaluated potential activity of PST inhibitor (PSTi8) in liver and adipose tissue in type 2 diabetic mice model. In this study we further explore the therapeutic effect of PSTi8 on glucose metabolism in skeletal muscle cells/tissue and its effect on energy homeostasis in diet induced diabetic mice model. In in-vitro studies, we found that PSTi8 increases glucose uptake via enhanced GLUT4 translocation in L6 cells. This positive effect of PSTi8 led us to proceed with in-vivo studies in diabetic mice. C57BL/6 mice were fed HFD or HFrD diet for 12 weeks along with single STZ induction at 4th week followed by PSTi8 treatment. We found that HFD and HFrD model showed increased fat mass, caused glucose intolerance and insulin resistance, with accompanying proinflammatory effect on epididymal white adipose tissue (eWAT) together leading to skeletal muscle insulin resistance. Administration of PSTi8 protects from diet induced inflammatory response and enhances glucose tolerance and insulin sensitivity. PSTi8 improves circulating adipokine and lipid parameters, along with switch in macrophage polarisation from M1 to M2 in stromal vascular fraction of adipose tissue. In addition, treatment of PSTi8 also improves energy homeostasis, decreases circulatory non-esterified fatty acids level and inhibits ceramide deposition in muscle tissue. Overall this increased muscle insulin sensitivity is mediated via AKT/AS160/GLUT4 pathway activation. Our results reveal that PSTi8 inhibits the obesity mediated inflammation which enhances glucose disposal in skeletal muscle.