In traditional Chinese medicine (TCM), Dangguiliuhuang decoction (DGLHD) is an effective treatment of autoimmune diabetes. Here, we studied potential anti-diabetic mechanisms of DGLHD in a non-obese diabetic (NOD) mouse model. In vitro, DGLHD and individual active ingredients enhanced glucose uptake in HepG2 cells, inhibited T lymphocyte proliferation, and suppressed dendritic cells (DCs) function. In vivo, DGLHD significantly inhibited insulitis, delayed the onset and development of diabetes, promoted insulin secretion and sensitivity, and balanced partially normalized Th1 and Th2 cytokines in NOD mice. In addition, DGLHD increased α1-antitrypsin (AAT-1), Bcl-2, and CyclinD1, and decreased Bax levels in pancreas, spleen, thymus, DCs, and a NIT-1 cell line, all consistent with protecting and repairing islet β cell. More detailed studies indicated that DGLHD regulated the maturation and function of DCs, decreased the percentage of merocytic dendritic cells (mcDCs) subset, and increased programmed death ligand-1 (PD-L1) expression in DCs. DGLHD also impeded T lymphocyte proliferation and promoted regulatory T cells (Tregs) differentiation in vivo. A JAK2-STAT3-dependent pathway was involved in the suppression by DGLHD of interactions between DCs and T lymphocyte. The experiments implicated five active ingredients in specific anti-diabetic actions of DGLHD. The results demonstrated the reasonable composition of the formula.