The present study was carried out to evaluate the antidiabetic and antilipidemic property of Terminalia arjuna in streptozotocin-induced type 2 diabetic model rats. 50% ethanol extract of stem bark of Terminalia arjuna were administered 1.25gkg-1 body weight for 21 consecutive days to type 2 diabetic male Long-Evans rats. Ethanol extract of T. arjuna significantly (p>0.05) improved oral glucose tolerance in type 2 rats in comparison to control group at the end of study period. It was also found that fasting serum glucose level decreased significantly (p>0.05) compared to water control after 21 days of feeding of T. arjuna. However, no change was observed in the liver glycogen content and serum insulin level at the end of the study period. In addition to hypoglycemic effect of T. arjuna, beneficial effect was also observed in lipid profile. Serum total cholesterol and triglyceride were decreased significantly by (p>0.01) and (p>0.001) at the end of the study period. Administration of Glibenclamide (5 mgkg-1) also produced significant reduction (p>0.01) in serum glucose concentration in type 2 diabetic rats.