Objectives: In diabetes, chronic hyperglycemia increases the overactivation of oxidative phosphorylation of mitochondria in the liver, resulting in oxidative stress (OS) damage. The Nrf2 signaling pathway plays a key role in preventing hepatic oxidative injury and inflammation. This study aims to investigate the therapeutic effect and mechanism of Modified Buyang Huanwu Decoction (mBYHWD) on diabetic liver injury (DLI) by regulating oxidative stress mediated by Nrf2 signaling pathway. Methods: The experiment was divided into three groups: a control group (db/m mice, Con), a diabetes model group (db/db mice, Mod), and a traditional Chinese medicine group (db/m mice, mBYHWD). Post-treatment, serum from each group was analyzed to assess changes of blood glucose, blood lipid, and liver function. These results were combined with data mining to explore the possible pathogenesis of DLI. Liver tissues were collected to observe the pathological morphology and detect related proteins. Results: The results demonstrated that mBYHWD significantly reduced blood lipids and improved liver function following diabetic liver injury. The histopathological results demonstrated that mBYHWD could significantly ameliorate damage of diabetic hepatocytes. Protein analysis revealed that mBYHWD treatment significantly increased the expression of antioxidant proteins in diabetic liver tissue and inhibited inflammation. Conclusions: The therapeutic mechanism of mBYHWD on DLI may involve activating the Nrf2 signaling pathway to improve oxidative stress, inhibit inflammation, and reduce liver tissue fibrosis.