The aim of this study was to assess the in vivo effects of the extract of the medicinal mushroom, Lactarius deterrimus, when administered (60 mg/kg, i.p.) daily for four weeks to streptozotocin- (STZ-) induced diabetic rats. Diabetic rats treated with the L. deterrimus extract displayed several improved biochemical parameters in the circulation: reduced hyperglycemia, lower triglyceride concentration and reduced glycated hemoglobin, glycated serum protein, and advanced glycation end product (AGE) levels. This treatment also adjusted the diabetes-induced redox imbalance. Thus, higher activities of the antioxidative enzymes, superoxide dismutase, and catalase in the circulation were accompanied by increased levels of free intracellular thiols and glutathionylated proteins after treatment with the L. deterrimus extract. In addition to a systemic antioxidant effect, the administration of the extract to diabetic rats also had a positive localized effect on pancreatic islets where it decreased AGE formation, and increased the expression of chemokine CXCL12 protein that mediates the restoration of β-cell population through the activation of the serine/threonine-specific Akt protein kinase prosurvival pathway. As a result, the numbers of proliferating cell nuclear antigen- (PCNA-) and insulin-positive β-cells were increased. These results show that the ability of the L. deterrimus extract to alleviate oxidative stress and increase β-cell mass represents a therapeutic potential for diabetes management.