Crustacean's shells constitute the traditional and current commercial source of Chitin. These derivatives/molecules are potential resource as well as multiple functional substrates have generate attractive interest in various fields such as biomedical, pharmaceutical, food and environmental industries. In the present investigation, chitinous wastes were collected from the fresh water areas of Dehradun and Rishikesh of Uttarakhand State. The bacterium, Bacillus sp. isolated from soil produces chitinase enzyme responsible for degradation of chitin obtained from chitinous wastes. Further the chitinases enzyme was utilized to degrade the chitinous wastes into chito-oligosaccharides. Chitosan was prepared by deacetylation process and chito-oligosaccharides (COS) was prepared by enzymatic hydrolysis of chitosan. As per the solubility aspect of chitosan and chito-oligosaccharides, it was found that these are more soluble in comparison to chitin, the parent compound. The anti-diabetic potential of these chitin based derivatives was determined against alloxan-induced albino rats (diabetic model). In alloxan-induced diabetic rats, both the chitosan and chito-oligosaccharides (COS) both decremented blood sugar levels at the cessation of 1 st , 2 nd and 4 th hours after dosing in acute studies. Simultaneously similar effect was observed during chronic studies, after 1 st , 2 nd and 3 rd week during repeated dosing of the extracts in diabetic model at an interval of 7 days. It was thus observed that, Chito-oligosaccharides (COS) at dose of 50 mg/kg/day and chitosan at dose of 100 mg/kg/day showed significant hypoglycemic activity in comparison to standard anti-diabetic drug, glibenclamide (10 mg/kg).