Oxidative stress induced by alloxan has been shown to damage pancreatic beta-cell and produce hyperglycemia in rats. Aegle marmelos leaf extract is being used in Ayurveda as a medicine for diabetes. The present study examined the action of Aegle marmelos against experimental diabetes as well as the antioxidant potential of the drug. A methanolic extract of Aegle marmelos was found to reduce blood sugar in alloxan diabetic rats. Reduction in blood sugar could be seen from 6th day after continuous administration of the extract and on 12th day sugar levels were found to be reduced by 54%. Oxidative stress produced by alloxan was found to be significantly lowered by the administration of Aegle marmelos extract. This was evident from a significant decrease in lipid peroxidation, conjugated diene and hydroperoxide levels in serum as well as in liver induced by alloxan. Catalase and glutathione peroxidase activity in blood and liver were found to be increased from 9th day onwards after drug administration. Superoxide dismutase and glutathione levels were found to be increased only on 12th day. These results indicate that Aegle marmelos extract effectively reduced the oxidative stress induced by alloxan and produced a reduction in blood sugar.