The alpha-amylase inhibitory effect of daucosterol purified from the peel of Chinese water chestnut (CWC), a common Chinese vegetable, was assessed. The alpha-amylase inhibitory properties were elucidated by enzyme inhibition, fluorescence quenching and molecular docking experiments. It was found that three saponins from CWC peel exhibited potent inhibitory activity on alpha-amylase and daucosterol was found to be the main inhibitory factor against alpha-amylase with a mixed-type mode. Strong fluorescence quenching of alpha-amylase was observed under static fluorescence quenching with hydrophobic interactions with daucosterol. Molecular docking revealed that the conformation of daucosterol in the high-affinity sites I and II of alpha-amylase was optimum, and hydrophobic interactions were produced by daucosterol aglycone, and hydrogen bonding by the β-D-glucopyranosyl residue. Ingested daucosterol suppressed the elevation of blood glucose levels through inhibition of alpha-amylase in the small intestine in starch-loaded mice. This study provides data supporting the potential benefit of daucosterol from CWC peel in the treatment of diabetes.