Type 2 diabetes mellitus (T2DM) is marked by persistent hyperglycemia, insulin resistance, and pancreatic β-cell dysfunction, imposing substantial health burdens and elevating the risk of systemic complications and cardiovascular diseases. While the pathogenesis of diabetes remains elusive, a cyclical relationship between insulin resistance and inflammation is acknowledged, wherein inflammation exacerbates insulin resistance, perpetuating a deleterious cycle. Consequently, anti-inflammatory interventions offer a therapeutic avenue for T2DM management. In this study, a herb called Baikal skullcap, renowned for its repertoire of bioactive compounds with anti-inflammatory potential, is posited as a promising source for novel T2DM therapeutic strategies. Our study probed the anti-diabetic properties of compounds from Baikal skullcap via network pharmacology, molecular docking, and cellular assays, concentrating on their dual modulatory effects on diabetes through Protein Tyrosine Phosphatase 1B (PTP1B) enzyme inhibition and anti-inflammatory actions. We identified the major compounds in Baikal skullcap using liquid chromatography–mass spectrometry (LC–MS), highlighting six flavonoids, including the well-studied baicalein, as potent inhibitors of PTP1B. Furthermore, cellular experiments revealed that baicalin and baicalein exhibited enhanced anti-inflammatory responses compared to the active constituents of licorice, a known anti-inflammatory agent in TCM. Our findings confirmed that baicalin and baicalein mitigate diabetes via two distinct pathways: PTP1B inhibition and anti-inflammatory effects. Additionally, we have identified six flavonoid molecules with substantial potential for drug development, thereby augmenting the T2DM pharmacotherapeutic arsenal and promoting the integration of herb-derived treatments into modern pharmacology.