Metformin is considered to be one of the most effective therapeutics for treating type 2 diabetes because it specifically reduces hepatic gluconeogenesis without increasing insulin secretion, inducing weight gain or posing a risk of hypoglycaemia. For over half a century, this agent has been prescribed to patients with type 2 diabetes worldwide, yet the underlying mechanism by which metformin inhibits hepatic gluconeogenesis remains unknown. Here we show that metformin non-competitively inhibits the redox shuttle enzyme mitochondrial glycerophosphate dehydrogenase, resulting in an altered hepatocellular redox state, reduced conversion of lactate and glycerol to glucose, and decreased hepatic gluconeogenesis. Acute and chronic low-dose metformin treatment effectively reduced endogenous glucose production, while increasing cytosolic redox and decreasing mitochondrial redox states. Antisense oligonucleotide knockdown of hepatic mitochondrial glycerophosphate dehydrogenase in rats resulted in a phenotype akin to chronic metformin treatment, and abrogated metformin-mediated increases in cytosolic redox state, decreases in plasma glucose concentrations, and inhibition of endogenous glucose production. These findings were replicated in whole-body mitochondrial glycerophosphate dehydrogenase knockout mice. These results have significant implications for understanding the mechanism of metformin's blood glucose lowering effects and provide a new therapeutic target for type 2 diabetes.