Natural products have been recommended as a complementary therapy for type 2 diabetes mellitus (T2DM) due to constraints of safety and tolerability of existing anti-diabetic agents. Luteolin exhibits anti-diabetic and anti-inflammatory effects. Hence, the impact of luteolin on glucose homoeostasis and organ damage was investigated in high-fat diet (HFD) and streptozotocin (STZ) induced T2DM in rats. Male Wistar rats were maintained on HFD (provided 55% energy as fat) for 10days. Subsequently, a single dose of 40mg/kg STZ was injected intraperitoneally on the 11th day. Seventy-two hours after STZ administration, diabetic rats with established hyperglycemia (fasting serum glucose > 200mg/dL) were randomized into different groups having six rats each and orally administered either 0.5% hydroxy propyl cellulose or pioglitazone (10mg/kg) or luteolin (50mg/kg or 100mg/kg) once daily for 28days, while continuing HFD for respective groups. Luteolin significantly reduced hyperglycaemia, homoeostasis model assessment (HOMA) of insulin resistance (HOMA-IR) levels, and improved hypoinsulinemia and HOMA of b-cell function (HOMA-B) in a dose-dependent manner. Increased TNF-α, IL-6 and NFκB levels in diabetic rats were significantly regulated. Additionally, luteolin significantly augmented PPAR-γ expression while attenuating sterol regulatory element binding protein-1c (SREBP-1c) expression. Histopathological scrutiny validated that luteolin effectively attenuated HFD-STZ-induced injury in pancreatic β-cells and kidneys to near normalcy. Our study showed that luteolin ameliorated hyperglycemia and improved hypoinsulinemia, β-cell dysfunction, and renal impairment in HFD-STZ-induced diabetic rats by attenuating inflammation and dysregulated cytokine secretion through modulation of PPAR-γ, TNF-α, IL-6 and NF-kB expression and down-regulation of SREBP-1c.