Managing diabetes is challenging due to the complex physiology of the disease and the numerous complications associated with it. As part of the ongoing search for antidiabetic chemicals, marine algae have been demonstrated to be an excellent source due to their medicinal properties. In this study, Ulva reticulata extracts were investigated for their anti-diabetic effect by examining its inhibitory effects on α-amylase, α-glucosidase, and DPP-IV and antioxidant (DPPH) potential in vitro and its purified fraction using animal models. Among the various solvents used, the Methanolic extract of Ulva reticulata (MEUR) displayed the highest antidiabetic activity in both in vitro and in vivo; it showed no cytotoxicity and hence was subjected to bioassay-guided chromatographic separation. Among the seven isolated fractions (F1 to F7), the F4 (chloroform) fraction exhibited substantial total phenolic content (65.19 μg mL−1) and total flavonoid content (20.33 μg mL−1), which showed the promising inhibition against α-amylase (71.67%) and α-glucosidase (38.01%). Active fraction (F4) was further purified using column chromatography, subjected to thin-layer chromatography (TLC), and characterized by spectroscopy techniques. Upon structural elucidation, five distinct compounds, namely, Nonane, Hexadecanoic acid, 1-dodecanol, Cyclodecane methyl, and phenol, phenol (3,5-bis(1,1-dimethylethyl) were identified. The antidiabetic mechanism of active fraction (F4) was further investigated using various in vitro and in vivo models. The results displayed that in in vitro both 1 and 24 h in vitro cultures, the active fraction (F4) at a concentration of 100 μg mL−1 demonstrated maximum glucose-induced insulin secretion at 4 mM (0.357 and 0.582 μg mL−1) and 20 mM (0.848 and 1.032 μg mL−1). The active fraction (F4) reduces blood glucose levels in normoglycaemic animals and produces effects similar to that of standard acarbose. Active fraction (F4) also demonstrated outstanding hypoglycaemic activity in hyperglycemic animals at a dose of 10 mg/kg B.wt. In the STZ-induced diabetic rat model, the active fraction (F4) showed a (61%) reduction in blood glucose level when compared to the standard drug glibenclamide (68%). The results indicate that the marine algae Ulva reticulata is a promising candidate for managing diabetes by inhibiting carbohydrate metabolizing enzymes and promoting insulin secretion.