Abstract Background Terminalia chebula (Combretaceae) has been widely used in Ayurveda for the treatment of diabetes. In the present investigation, the chloroform extract of T. chebula seed powder was investigated for its antidiabetic activity in streptozotocin-induced diabetic rats using short term and long term study protocols. The efficacy of the extract was also evaluated for protection of renal functions in diabetic rats. Methods The blood glucose lowering activity of the chloroform extract was determined in streptozotocin-induced (75 mg/kg, i.p.; dissolved in 0.1 M acetate buffer; pH 4.5) diabetic rats, after oral administration at the doses of 100, 200 and 300 mg/kg in short term study. Blood samples were collected from the eye retro-orbital plexus of rats before and also at 0.5, 1, 2, 4, 6, 8 and 12 h after drug administration and the samples were analyzed for blood glucose by using glucose-oxidase/peroxidase method using a visible spectrophotometer. In long term study, the extract (300 mg/kg) was administered to streptozotocin-induced diabetic rats, daily for 8 weeks. Blood glucose was measured at weekly intervals for 4 weeks. Urine samples were collected before the induction of diabetes and at the end of 8 weeks of treatments and analyzed for urinary protein, albumin and creatinine levels. The data was compared statistically using one-way ANOVA with post-hoc Dunnet's t-test. Results The chloroform extract of T. chebula seeds produced dose-dependent reduction in blood glucose of diabetic rats and comparable with that of standard drug, glibenclamide in short term study. It also produced significant reduction in blood glucose in long term study. Significant renoprotective activity is observed in T. chebula treated rats. The results indicate a prolonged action in reduction of blood glucose by T. chebula and is probably mediated through enhanced secretion of insulin from the β-cells of Langerhans or through extra pancreatic mechanism. The probable mechanism of potent renoprotective actions of T. chebula has to be evaluated. Conclusion The present studies clearly indicated a significant antidiabetic and renoprotective effects with the chloroform extract of T. chebula and lend support for its traditional usage. Further investigations on identification of the active principles and their mode of action are needed to unravel the molecular mechanisms involved in the observed effects.