Background: Type-2 diabetes mellitus (T2DM) is a non-communicable, life-threatening syndrome that is present all over the world. The use of eco-friendly, cost-effective and green synthesised nanoparticles (NPs) as a medicinal therapy in the treatment of T2DM is an attractive option. Aim: The present study aimed to evaluate the anti-diabetic potential of the phyto-synthesised silver nanoparticles (AgNPs) obtained from Phagnalon niveum plant methanolic extract. Methods: The green synthesised AgNPs made from Phagnalon niveum plant methanolic extract were analysed by Ultraviolet-Visible (UV-Vis) spectroscopy, and the functional groups involved in the reduction of the silver ions (Ag+) were characterised by Fourier Transform Infrared (FTIR) spectroscopy. The size and crystallinity were assessed via X-ray Diffraction (XRD). The morphology of AgNPs was confirmed using Scanning Electron Microscopy (SEM). The amount of silver (Ag) was estimated via energy dispersive X-ray (EDX) analysis. An intraperitoneal injection of 200 mg alloxan per kg albino Wistar rats’ body weight, at eight weeks old and weighing 140–150 g, was used to induce diabetes mellitus (N = 25; n = 5/group). Group C: untreated normal control rats that only received distilled water, group DAC: diabetic control rats that received alloxan 200 mg/Kg body weight, DG: diabetic rats treated with glibenclamide at 0.5 mg/kg body weight, DE: diabetic rats that received methanolic P. niveum extract at 10 mg/Kg body weight, and DAgNPs: diabetic rates that received AgNPs synthesised from P. niveum at 10 mg/kg body weight. The blood glucose levels were monitored on days 0, 7, and 14, while lipid, liver, and kidney profiles were checked after dissection at the end of treatment (day 21). On the final day of the period study (day 21), an oral glucose tolerance test was carried out by administering orally 2 g/kg body weight of glucose to the respective groups, and the blood glucose level was checked. A fasting glucose level was measured using a glucometer. Urine samples were collected from each animal and analysed using lab-made assay kits for glucose, bilirubin, pH, leukocytes, and nitrite, among other factors. For statistical analyses, a one-way ANOVA and Dunnett’s test were applied. Results: The green-mediated synthesis of AgNPs using P. niveum methanolic extract produced spherical and mono-dispersed NPs with a size ranging from 12 to 28 nm (average: 21 nm). Importantly, a significant reduction of blood glucose levels and an increase in body weight, as well as a remarkable improvement in lipid, liver, and kidney profiles, were noticed. Conclusions: The biosynthesised AgNPs significantly improved the abnormalities in body weight, urine, and serum levels, indicating that it is a promising anti-diabetic agent.