1-Deoxynojirimycin (DNJ) exerts hypoglycemic effects. However, the traditional method for DNJ extraction is inefficient, and the hypoglycemic mechanism of DNJ remains unclear. In this study, the mixed fermentation by Lactobacillus fermentum and Saccharomyces cerevisiae was used to enhance DNJ extraction efficiency. It was found that this strategy was more efficient than the traditional method as the yield improved from the original 3.24 mg/g to 5.97 mg/g. The purified DNJ significantly decreased serum glucose (P < 0.01) and insulin levels (P < 0.05), improved serum lipid levels (P < 0.05), and reversed insulin resistance (P < 0.05) in diabetic mice. These changes were caused by up-regulating the protein expression of insulin receptor and glycolysis enzymes (GK, PK, and PFK) (P < 0.05) and down-regulating the protein expression of insulin receptor substrate-1 and gluconeogenesis enzymes (PCB, PEPCK, FBPase, and G-6-Pase) (P < 0.05), thus alleviating glucose tolerance. Additionally, DNJ treatment relieved gut dysbiosis in diabetic mice by promoting the growth of Lactobacillus, Lachnospiraceae NK4A136 group, Oscillibacter, norank Lachnospiraceae, Alistipes, and Bifidobacterium (P < 0.05) and suppressing the growth of Ruminococcaceae UCG-014, Weissella, Ruminococcus, Prevotellaceae Ga6A1 group, Anaerostipes, Klebsiella, Prevotellaceae UCG-001, and Bacteroidales S24-7 group (P < 0.05).