The objective of this study was to investigate the therapeutic efficacies of crude yam (Dioscorea batatas) powder (PY), water extract of yam (EY), and allantoin (the active constituent of yam) in streptozotocin (STZ)-induced diabetic rats with respect to glucose, insulin, glucagon-like peptide-1 (GLP-1), C-peptide, glycated hemoglobin (HbAlc), lipid metabolism, and oxidative stress. For this purpose, 50 rats were divided into five groups: normal control (NC), diabetic control (STZ), and STZ plus treatment groups (STZ + PY, STZ + EY, and STZ + allantoin). After treatment for one-month, there was a decrease in blood glucose: 385 ± 7 in STZ, 231 ± 3 in STZ + PY, 214 ± 11 in STZ + EY, and 243 ± 6 mg/dL in STZ + allantoin, respectively. There were significant statistical differences (p < 0.001) compared to STZ (100%): 60% in STZ + PY, 55% in STZ + EY, and 63% in STZ + allantoin. With groups in the same order, there were significant decreases (p < 0.001) in HbAlc (100% as 24.4 ± 0.6 ng/mL, 78%, 75%, and 77%), total cholesterol (100% as 122 ± 3 mg/dL, 70%, 67%, and 69%), and low-density lipoprotein (100% as 29 ± 1 mg/dL, 45%, 48%, and 38%). There were also significant increases (p < 0.001) in insulin (100% as 0.22 ± 0.00 ng/mL, 173%, 209%, and 177%), GLP-1 (100% as 18.4 ± 0.7 pmol/mL, 160%, 166%, and 162%), and C-peptide (100% as 2.56 ± 0.10 ng/mL, 129%, 132%, and 130%). The treatment effectively ameliorated antioxidant stress as shown by a significant decrease (p < 0.001) in malondialdehyde (100% as 7.25 ± 0.11 nmol/mL, 87%, 86%, and 85%) together with increases (p < 0.01) in superoxide dismutase (100% as 167 ± 6 IU/mL, 147%, 159%, and 145%) and reduced glutathione (100% as 167 ± 6 nmol/mL, 123%, 141%, and 140%). The results indicate that yam and allantoin have antidiabetic effects by modulating antioxidant activities, lipid profiles and by promoting the release of GLP-1, thereby improving the function of β-cells maintaining normal insulin and glucose levels.