Background: Modern research and clinical practice have proved that Traditional Chinese Medicine (TCM) has unique advantages in the treatment of diabetes. JinXiaoXiaoKe decoction (JXXKD) is a prescription for treating diabetes used in ancient China and still has a good clinical effect today. However, the mechanism of JXXKD against T2DM is unclear. Objective: The purpose of this study is to screen the targets through network pharmacology, and to explore the therapeutic effect and mechanism of JXXKD on diabetic rats. Methods: The JXXKD's active components, related targets and T2DM targets were obtained from the public database, and Venny 2.1 was used to determine the common targets of JXXKD in the treatment of T2DM, and PPI, GO and KEGG analysis were performed. The core components and targets are verified by molecular docking. The diabetic Goto–Kakizaki rat model was established by high-sugar and high-fat diet, Wistar rats were used as a blank control group. The diabetic rats were randomized into three groups and administered saline (MO), metformin (MET), or JXXKD once a day for 4 weeks. Fasting blood glucose (FBG), Fasting serum insulin (FINS), and HOMA-IR were detected, hematoxylin-eosin (HE) staining was used to observe the pathological changes of liver tissue; and qPCR was used to detect the expression of relevant genes screened by network pharmacology. Results: 93 active components and 296 targets of JXXKD were identified, of which 156 overlapped with T2DM-related targets. PPI network showed that APP, AKT1, ANXA1, RXRA, C3, EGFR, ESR1, RELA, IL6, and MAPK8 were the top 10 relevant targets. GO analysis showed the common targets are mainly involved in oxidative stress, lipid metabolism, and nutrient levels, while KEGG analysis showed these targets may regulate lipids and atherosclerosis, AGE-RAGE signaling pathway, and TNF signaling pathway. Molecular docking suggested a satisfactory potential for key components to bind to these significant targets. The animal experiments showed that JXXKD significantly improved the symptoms of polyuria, decreased the protein levels of FBG and HOMA-IR, improved liver fat deposition, and decreased the gene expressions of Foxo1, Pparg and Akt in diabetic rats. Conclusion: The mechanism of JXXKD treat T2DM may be achieved by modulating the expression of FOXO1, PPARG, and AKT, regulating the glucose and lipids metabolism.