Background. The study was designed to assess the efficacy and safety of Chinese herbal decoction in treating outpatients with T2DM. Methods. All patients enrolled received decoction for at least 6 months. The primary outcome was the control rate of HbA1c and the change in HbA1c. FPG, 2hPG, HOMA-IR, and HOMA-β were also collected and evaluated. Results. The control rates after treatment at months 6, 12, 18, 24, 36, 48, and 60 were 45.07%, 52.78%, 47.22%, 45.83%, 50.00%, 57.14%, and 40.00%. Multiple linear regression showed the change of HbA1c has a significant relationship with the baseline HbA1c and duration of DM and BMI (p < 0.05). Both FPG and 2hPG levels significantly decreased compared to the baseline (p < 0.05). Chinese herbal decoction also improved islet cell function with decreased HOMA-IR and increased HOMA-β (p < 0.05). 19 and 4 subjects deactivated the antidiabetes drugs or insulin, respectively, after taking decoction. One subject developed DKD and one developed DPN, and another subject showed abnormal liver function which was irrelevant to decoction treatment. Conclusions. Chinese herbal decoction significantly enhanced the hypoglycemic action and had certain effect on protecting islet cell function. As a candidate diabetes therapy, it may reduce the use of antidiabetes drugs and slow the progression to diabetes complications.