Berberis lycium Royle (Berberidaceae) is traditionally used for the treatment of diabetes mellitus. Present study was conducted to determine the antioxidant, antidiabetic and anti-inflammatory effects of aqueous and methanolic whole plant extracts. Total phenolic contents were determined by Folin-ciocalteu method whereas antioxidant activity was determined by 2,2-diphenyl-1-picryl hydrazyl (DPPH) method. In vitro anti-diabetic activity was determined using alpha amylase assay. Acute hypoglycemic activity was investigated on normoglycemic rats. Sub-acute anti-diabetic effects were investigated in alloxan induced diabetic rats for 14 days. Methanolic extract exhibited 183.5±1 mg/g Gallic acid equivalent (GAE) phenolic contents. The methanolic extract exhibited an IC50 of 242µg/mL and 37.26 mg/mL in antioxidant and alpha amylase inhibitory assays respectively. Administration of methanolic extract in normoglycemic rats exhibited significant anti-hyperglycemic effect at 90 and 120 min. Methanolic extract (500 mg/kg extract) significantly reduced blood glucose at day 14. Methanolic extract (500 mg/kg) significantly reduced the concentration of tumor necrosis factor (TNF-α) and interleukin (IL-6) along with reduction in total cholesterol and triglyceride levels in diabetic rats. Administration of methanol extract also improved the hepatic markers. The study suggested that the methanolic extract possessed antidiabetic effect that might be attributed to its alpha amylase, antioxidant and anti-inflammatory potential.