For centuries, Berberine has been used in the treatment of enteritis in China, and it is also known to have anti-hyperglycemic effects in type 2 diabetic patients. However, as Berberine is insoluble and rarely absorbed in gastrointestinal tract, the mechanism by which it works is unclear. We hypothesized that it may act locally by ameliorating intestinal barrier abnormalities and endotoxemia. A high-fat diet combined with low-dose streptozotocin was used to induce type 2 diabetes in male Sprague Dawley rats. Berberine (100 mg/kg) was administered by lavage to diabetic rats for 2 weeks and saline was given to controls. Hyperinsulinemia and insulin resistance improved in the Berberine group, although there was no significant decrease in blood glucose. Berberine treatment also led to a notable restoration of intestinal villi/mucosa structure and less infiltration of inflammatory cells, along with a decrease in plasma lipopolysaccharide (LPS) level. Tight junction protein zonula occludens 1 (ZO1) was also decreased in diabetic rats but was restored by Berberine treatment. Glutamine-induced glucagon-like peptide 2 (GLP2) secretion from ileal tissue decreased dramatically in the diabetic group but was restored by Berberine treatment. Fasting insulin, insulin resistance index, plasma LPS level, and ZO1 expression were significantly correlated with GLP2 level. In type 2 diabetic rats, Berberine treatment not only augments GLP2 secretion and improves diabetes but is also effective in repairing the damaged intestinal mucosa, restoring intestinal permeability, and improving endotoxemia. Whether these effects are mechanistically related will require further studies, but they certainly support the hypothesis that Berberine acts via modulation of intestinal function.