Metformin, the first-line drug to treat type 2 diabetes (T2D), inhibits mitochondrial glycerolphosphate dehydrogenase in the liver to suppress gluconeogenesis. However, the direct target and the underlying mechanisms by which metformin increases glucose uptake in peripheral tissues remain uncharacterized. Lipid phosphatase Src homology 2 domain-containing inositol-5-phosphatase 2 (SHIP2) is upregulated in diabetic rodent models and suppresses insulin signaling by reducing Akt activation, leading to insulin resistance and diminished glucose uptake. Here, we demonstrate that metformin directly binds to and reduces the catalytic activity of the recombinant SHIP2 phosphatase domain in vitro. Metformin inhibits SHIP2 in cultured cells and in skeletal muscle and kidney of db/db mice. In SHIP2-overexpressing myotubes, metformin ameliorates reduced glucose uptake by slowing down glucose transporter 4 endocytosis. SHIP2 overexpression reduces Akt activity and enhances podocyte apoptosis, and both are restored to normal levels by metformin. SHIP2 activity is elevated in glomeruli of patients with T2D receiving nonmetformin medication, but not in patients receiving metformin, compared with people without diabetes. Furthermore, podocyte loss in kidneys of metformin-treated T2D patients is reduced compared with patients receiving nonmetformin medication. Our data unravel a novel molecular mechanism by which metformin enhances glucose uptake and acts renoprotectively by reducing SHIP2 activity.—Polianskyte-Prause, Z., Tolvanen, T. A., Lindfors, S., Dumont, V., Van, M., Wang, H., Dash, S. N., Berg, M., Naams, J.-B., Hautala, L. C., Nisen, H., Mirtti, T., Groop, P.-H., Wähälä, K., Tienari, J., Lehtonen, S. Metformin increases glucose uptake and acts renoprotectively by reducing SHIP2 activity.