Despite the existence of modern antidiabetic medications, diabetes still affects millions of individuals worldwide, with a high death and disability rate. There has been a concerted search for alternative natural medicinal agents; luteolin (LUT), a polyphenolic molecule, might be a good choice, both because of its efficacy and because of it having fewer side effects, compared to conventional medicines. This study aims to explore the antidiabetic potential of LUT in diabetic rats, induced by streptozotocin (STZ; 50 mg/kg b.w.), intraperitoneally. The level of blood glucose, oral glucose tolerance test (OGTT), body weight, glycated hemoglobin A1c (HbA1c), lipidemic status, antioxidant enzymes, and cytokines were assessed. Also, its action mechanism was explored through molecular docking and molecular dynamics simulations. Oral supplementation of LUT for 21 days resulted in a significant decrease in the blood glucose, oxidative stress, and proinflammatory cytokine levels, and modulated the hyperlipidemia profile. LUT also ameliorated the tested biomarkers of liver and kidney function. In addition, LUT markedly reversed the damage to the pancreas, liver, and kidney cells. Moreover, molecular docking and molecular dynamics simulations revealed excellent antidiabetic behavior of LUT. In conclusion, the current investigation revealed that LUT possesses antidiabetic activity, through the reversing of hyperlipidemia, oxidative stress, and proinflammatory status in diabetic groups. Therefore, LUT might be a good remedy for the management or treatment of diabetes.