Spirulina platensis has been found to be useful in the treatment of type 2 diabetes. The present study aims to elucidate the effects of ethanol extract and butanol fraction of S. platensis on insulin release and glucose homoeostasis in type 2 diabetic rats, together with their mechanism of actions. In vitro and in vivo methods were used including cellular studies to determine potential role of ion channels and cAMP in the insulinotropic actions of the extracts. The ethanol extract and butanol fraction stimulated insulin release from mouse islets and pancreatic β-cells in a concentration-dependent manner. The butanol fraction also similarly stimulated insulin release from perfused rat pancreas. The insulin-releasing action was augmented by glucose, isobutylmethylxanthine, tolbutamide and a depolarising concentration of KCl. The insulin secretory effect was attenuated with diazoxide and verapamil and by omission of extracellular Ca2+. Butanol fraction was found to significantly inhibit dipeptidyl peptidase IV enzyme activity. Moreover, butanol fraction improved glucose tolerance following oral glucose administration (2·5 g/kg body weight (b.w.)). The butanol fraction was tested on 24 h starved rats given an oral sucrose load (2·5 g/kg b.w.) to examine possible effects on carbohydrate digestion and absorption. S. platensis substantially decreased postprandial hyperglycaemia after oral sucrose load and increased unabsorbed sucrose content throughout the gut. During in situ intestinal perfusion with glucose, the butanol fraction reduced glucose absorption and promoted gut motility. Finally, chronic oral administration of butanol fraction for 28 d significantly decreased blood glucose, increased plasma insulin, pancreatic insulin stores, liver glycogen and improved lipid profile. The characterisation of active compounds from butanol fraction revealed the presence of p-coumaric acid, β-carotene, catechin and other antioxidant polyphenols. In conclusion, S. platensis could be an adjunctive therapy for the management of type 2 diabetes.