Metformin is regarded as an antihyperglycaemic agent because it lowers blood glucose concentrations in type 2 (non-insulin-dependent) diabetes without causing overt hypoglycaemia. Its clinical efficacy requires the presence of insulin and involves several therapeutic effects. Of these effects, some are mediated via increased insulin action, and some are not directly insulin dependent. Metformin acts on the liver to suppress gluconeogenesis mainly by potentiating the effect of insulin, reducing hepatic extraction of certain substrates (e.g. lactate) and opposing the effects of glucagon. In addition, metformin can reduce the overall rate of glycogenolysis and decrease the activity of hepatic glucose-6-phosphatase. Insulin-stimulated glucose uptake into skeletal muscle is enhanced by metformin. This has been attributed in part to increased movement of insulin-sensitive glucose transporters into the cell membrane. Metformin also appears to increase the functional properties of insulin- and glucose-sensitive transporters. The increased cellular uptake of glucose is associated with increased glycogen synthase activity and glycogen storage. Other effects involved in the blood glucose-lowering effect of metformin include an insulin-independent suppression of fatty acid oxidation and a reduction in hypertriglyceridaemia. These effects reduce the energy supply for gluconeogenesis and serve to balance the glucose-fatty acid (Randle) cycle. Increased glucose turnover, particularly in the splanchnic bed, may also contribute to the blood glucose-lowering capability of metformin. Metformin improves insulin sensitivity by increasing insulin-mediated insulin receptor tyrosine kinase activity, which activates post-receptor insulin signalling pathways. Some other effects of metformin may result from changes in membrane fluidity in hyperglycaemic states. Metformin therefore improves hepatic and peripheral sensitivity to insulin, with both direct and indirect effects on liver and muscle. It also exerts effects that are independent of insulin but cannot substitute for this hormone. These effects collectively reduce insulin resistance and glucotoxicity in type 2 diabetes.