Type 2 diabetes mellitus (T2DM) is characterized by abnormalities in carbohydrate, lipoprotein and lipid metabolism, leading to hyperglycemia and several other complications. Insulin is the major hormone regulating these facets by eliciting various biological responses through its receptor. Insulin exerts diverse effects on cells by targeting distinct functions such as gene expression, fatty acid synthesis, glucose transport and receptor translocation. Insulin mediates these effects through signaling pathways utilizing adapter molecules like small Gproteins, lipid and tyrosine kinases. The anomalous cell response in diabetic condition is due to altered expression/function of these molecules. Thiazolidinediones (TZD's), a class of oral hypoglycemic drugs, have shown to modify these responses, leading to insulin sensitizing effect(s). The TZD's are not only PPARγ agonists, but substantial insulin sensitizing activity is observed through its direct and indirect targets of the insulin receptor pathway, which contributes to its overall performance. TZD's alter(s) cell response via downstream players, primarily IRS, Akt/PKB, PKC, GLUT4, MEK, ERK and transcription factor PGC1α. Thus, this review will focus on the alteration(s) of these molecules in various cell types in diabetic condition and their regulation by TZD's. The physiological changes that occur at the molecular level in T2DM and their modulation by TZD's will provide insights into the key players involved and the potential drug targets for future drug development. The review further highlights the key markers to be evaluated in screening of any potential anti-diabetic agent, and to standardize therapy for T2DM based upon its modulation of the various signaling pathways.