Nymphaea stellata (Willd.) has been used in traditional medicine for centuries to treat several illnesses, including diabetes. However, scientific evidence supporting its mechanism of action is lacking. Here, we showed that an N. stellata flower chloroform extract (NSFCExt) has significant plasma glucose lowering ability. Furthermore, an active compound was identified and purified by column chromatography, and the structure of this compound, nymphayol, was determined by X-ray crystallographic analysis. Nymphayol was tested for its effects on insulin secretion by RIN-5F cells cultured in low or high glucose medium; we found that nymphayol treatment improved glucose-stimulated insulin secretion in vitro. Additionally, insulin sensitization and glucose uptake were increased in L6 myotubes. Nymphayol was administered to type 2 diabetic male Wistar rats at several doses (5, 10 or 20 mg/kg/day) for 45 days. After nymphayol administration, the plasma glucose concentration was significantly (p⩽0.05) lower (60.33%) than in control diabetic rats, and the plasma insulin level increased in a dose-dependent manner. In addition, the cellular insulin response was analyzed in type 2 diabetic rats; oral administration of nymphayol increased IRS1 phosphorylation and GLUT4 protein expression in liver and muscle. Nymphayol significantly (p⩽0.05) restored the levels of HbA1c, hepatic glycogen and hepatic glucose-metabolizing enzyme (hexokinase, glucose-6-phosphate dehydrogenase, glucose-6-phosphatase, fructose-1, 6-bisphosphatase, glycogen synthase and glycogen phosphorylase) activity in diabetic rats. The administration of glibenclamide, a reference drug (600 μg/kg), also produced a significant (p⩽0.05) reduction in blood glucose in STZ-nicotinamide induced diabetic rats. The results suggest that nymphayol may be a useful therapy for diabetes because it stimulates insulin secretion and promotes glucose absorption.