The prevalence of insulin resistance and type 2 diabetes increases rapidly; however, treatments are limited. Various herbal extracts have been reported to reduce blood glucose in animals with either genetic or dietary type 2 diabetes; however, plant extracts are extremely complex, and leading compounds remain largely unknown. Here we show that 5-O-methyl-myo-inositol (also called sequoyitol), a herbal constituent, exerts antidiabetic effects in mice. Sequoyitol was chronically administrated into ob/ob mice either orally or subcutaneously. Both oral and subcutaneous administrations of sequoyitol decreased blood glucose, improved glucose intolerance, and enhanced insulin signaling in ob/ob mice. Sequoyitol directly enhanced insulin signaling, including phosphorylation of insulin receptor substrate-1 and Akt, in both HepG2 cells (derived from human hepatocytes) and 3T3-L1 adipocytes. In agreement, sequoyitol increased the ability of insulin to suppress glucose production in primary hepatocytes and to stimulate glucose uptake into primary adipocytes. Furthermore, sequoyitol improved insulin signaling in INS-1 cells (a rat β-cell line) and protected INS-1 cells from streptozotocin- or H₂O₂-induced injury. In mice with streptozotocin-induced β-cell deficiency, sequoyitol treatments increased plasma insulin levels and decreased hyperglycemia and glucose intolerance. These results indicate that sequoyitol, a natural, water-soluble small molecule, ameliorates hyperglycemia and glucose intolerance by increasing both insulin sensitivity and insulin secretion. Sequoyitol appears to directly target hepatocytes, adipocytes, and β-cells. Therefore, sequoyitol may serve as a new oral diabetes medication.