Chitosan is a natural product derived from chitin. To investigate the hypoglycemic and anti-obesity effects of chitosan, male Sprague-Dawley rats were divided into four groups: normal control, diabetic, and diabetic fed 5% or 7% chitosan. Diabetes was induced in rats by injecting streptozotocin/nicotinamide. After 10 weeks of feeding, the elevated plasma glucose, tumor necrosis factor-α, and interleukin-6 and lower adiponetin levels caused by diabetes were effectively reversed by chitosan treatment. In addition, 7% chitosan feeding also elevated plasma glucagon-like peptide-1 levels and lowered the insulin resistance index (homeostasis model assessment) in diabetic rats. Lower adipocyte granular intensities and higher lipolysis rates in adipose tissues were noted in the 7% chitosan group. Moreover, chitosan feeding reduced hepatic triglyceride and cholesterol contents and increased hepatic peroxisomal proliferator-activated receptor α expression in diabetic rats. Our results indicate that long-term administration of chitosan may reduce insulin resistance through suppression of lipid accumulation in liver and adipose tissues and amelioration of chronic inflammation in diabetic rats.