Diabetes mellitus (DM) is currently ranked among leading causes of death worldwide in which type 2 DM is reaching an epidemic proportion. Hypoglycemic medications for type 2 DM have either proven inadequate or posed adverse effects; therefore, the Chinese herbal products are under investigation as an alternative treatment. In this study, a novel combination of fruiting body and mycelia powder of herbal Cordyceps militaris number 1 (CmNo1) was administered to evaluate their potential hypoglycemic effects in high-fat diet- (HFD-) induced type 2 DM in C57BL/6J mice. Body weight, fasting blood glucose (FBG), oral glucose tolerance test (OGTT), and blood biochemistry indexes were measured. Results indicated that CmNo1 lowered the blood glucose level by increasing insulin sensitivity, while no change in body weight was observed. Increased protein expression of IRS-1, pIRS-1, AKT, pAKT, and GLUT-4 in skeletal muscle and adipose tissue was found indicating restoration of insulin signaling. Additionally, PPAR-γ expression in adipose tissue restored the triglyceride and cholesterol levels. Finally, our results suggest that CmNo1 possesses strong hypoglycemic, anticholesterolemic, and antihypertriglyceridemic actions and is more economical alternate for DM treatment.