Ghrelin, a 28-amino acid peptide, is a strong growth hormone secretagogue and a regulator of food intake. In addition, ghrelin is thought to play a role in insulin secretion and in glucose homeostasis. A lot of contradictory data have been reported in the literature regarding the co-localization of ghrelin with other hormones in the islet of Langerhans, its role in insulin secretion and attenuation of type 2 diabetes mellitus. In this study, we investigate the effect of chronic ghrelin treatment on glucose, body weight and insulin level in normal and streptozotocin-induced diabetic male Wistar rats. We have also examined the distribution pattern and co-localization of ghrelin with insulin in pancreatic islet cells using immunohistochemistry and immune-electron microscopy and the ability of ghrelin to stimulate insulin release from the CRL11065 beta cell line. Control, non-diabetic groups received intraperitoneal injection of normal saline, while treated groups received intraperitoneal injection of 5 µg/kg body weight of ghrelin (amino acid chain 24–51) on a daily basis for a duration of four weeks. Our results show that the administration of ghrelin increases the number of insulin-secreting beta cells and serum insulin level in both normal and diabetic rats. We also demonstrated that ghrelin co-localizes with insulin in pancreatic islet cells and that the pattern of ghrelin distribution is altered after the onset of diabetes. Moreover, ghrelin at a dose of 10−6 M and 10−12 M increased insulin release from the CRL11065 beta cell line. In summary, ghrelin co-localizes with insulin in the secretory granules of pancreatic beta cells and enhances insulin production.