Arbutin is a glycosylated hydroquinone with antioxidant and anti-hyperglycemia effects. However, its beneficial effects in type 2 diabetes (T2D) were not clarified. This study evaluated the effect of arbutin on hyperglycemia, dyslipidemia, insulin resistance, oxidative stress, and inflammatory response in T2D. Rats induced by high fat diet and streptozotocin were treated with arbutin (25 and 50 mg/kg) for 4 weeks. Diabetic rats exhibited glucose intolerance, elevated HbA1c%, reduced insulin, and high HOMA-IR. Liver glycogen and hexokinase activity were decreased in T2D rats while glucose-6-phosphatase (G6Pase), fructose-1,6- biphosphatase (FBPase), and glycogen phosphorylase were upregulated. Circulating and hepatic cholesterol and triglycerides and serum transaminases were elevated in T2D rats. Arbutin ameliorated hyperglycemia, dyslipidemia, insulin deficiency and resistance, and liver glycogen and alleviated the activity of carbohydrate-metabolizing enzymes. Both doses of arbutin decreased serum transaminases and resistin, and liver lipids, TNF-α, IL-6, malondialdehyde and nitric oxide, downregulated liver resistin and fatty acid synthase, and increased serum and liver adiponectin, and liver reduced glutathione (GSH), superoxide dismutase (SOD) and catalase (CAT). These effects were associated with the upregulation of hepatic PPARγ. Arbutin inhibited α-glucosidase in vitro and in silico investigations revealed the ability of arbutin to bind PPARγ, hexokinase, and α-glucosidase. In conclusion, arbutin effectively ameliorated glucose intolerance, insulin resistance, dyslipidemia, inflammation, and oxidative stress, and modulated carbohydrate-metabolizing enzymes, antioxidants, adipokines and PPARγ in T2D in rats.