The antidiabetic effect of cinnamon has generated broad interest during the past decade. We investigated the hypoglycemic activity and pancreas-protective effect of leaf essential oil from indigenous cinnamon (CO) in diabetic rats induced with streptozotocin (STZ, iv, 65 mg/(kg bw)) and found linalool to be the major component representing 40.24% of the CO composition. In diabetics, all tested doses of CO significantly lowered fasting blood glucose and fructosamine and are concomitant with elevated plasma and pancreatic insulin levels under a fasting condition. However, during the oral glucose tolerance test (OGTT) period the effect of 25 and 50 mg/(kg bw) of CO was shown to be less effective than that of 12.5 mg/(kg bw) in ameliorating the accumulation of plasma insulin. In addition, at 12.5 mg/(kg bw), CO significantly ameliorated pancreatic values of thiobarbituric acid reactive substances and activities of superoxide dismutase and glutathione reductase in diabetics to an extent greater than that of higher CO doses. At doses 12.5 and 25 but not 50 mg/(kg bw), CO significantly ameliorated pancreatic levels of interleukin-1β and nitric oxide. In conclusion, appropriate doses of CO of the linalool chemotype exhibited therapeutic potential in glycemic control in diabetes that was at least partially resulted from improved insulin secretion. The ameliorated oxidative stress and proinflammatory environment in the pancreas by CO may provide a protective effect on pancreatic β cells and warrant further investigation.