The antidiabetic actions of Castanospermum australe Cunn., seed (CAS) extract were evaluated in Poloxamer-407 (PX-407) induced T2DM rats. The CAS extract (100 and 150 mg/kg body weight) was administered orally once a day for 5 weeks after the animals were confirmed diabetic. A significant increase in blood glucose, HbA₁c and serum insulin levels were observed in T2DM rats in comparison to citrate control rats. Treatment with CAS extract in T2DM rats reduced the elevated levels of blood glucose, HbA₁c and insulin with significant (p≤0.001) improvement in OGT. The CAS extract treatment also increased (p≤0.001) the K(ITT) and prevented increase in HOMA-R level in T2DM rats. The DPP-IV inhibitory potential of CAS extract showed IC₅₀ value of 13.96 μg/ml whilst the standard Diprotin A displayed the IC₅₀ value of 1.543 μg/ml. Molecular docking of the three reported alkaloids from the seeds of C. australe showed comparable DPP-IV inhibition with berberine. Our data suggest that CAS extract (150 mg/kg body weight) normalizes hyperglycemia in T2DM rats with strong DPP-IV inhibitory potential. The molecular docking showed that among the three alkaloids of seed extract 7-Deoxy-6-epi-castanospermine is a potent DPP-IV inhibitor similar to berberine.