The roots of Paeonia lactiflora (PL) has been traditionally used as analgesic, spasmolytic and tonic in Korea, China, and Japan. As part of a search for herbal medicine to treat diabetes and obesity, we confirmed hypoglycemic effect of PL through high fat diet-induced obese and diabetic mice experiments in vivo. Treatment of ethanolic extract from PL led to a significant decrease in glucose level, which is comparable to that of an antidiabetic drug metformin. In addition, PL selectively stimulates the transcriptional activities of both peroxisome proliferator-activated receptor (PPAR)α and γ, and inhibits enzymatic activity of protein tyrosine phosphatase 1B (PTP1B), which are predicted to be therapeutic target in treatment of type2 diabetes and obesity. Especially, the n-hexane fraction (Hx) from PL ethanol extract showed more potent activities on PPARα and than others and exihibited moderate inhibitory activity against PTP1B.