The present study was designed to investigate the anti-diabetic effect and mechanism of Korean red ginseng in C57BL/KsJ db/db mice. The db/db mice were divided into three groups: diabetic control group (DC), Korean red ginseng group (KRG, 100 mg/kg) and metformin group (MET, 300 mg/kg), and treated with drugs once per day for 10 weeks. Compared to the DC group, fasting blood glucose levels were decreased by 19.8% in KRG-, 67.7% in MET-treated group. With decreased plasma glucose and insulin levels, the insulin resistance index of the KRG-treated group was reduced by 27.6% compared to the DC group. The HbA1c levels in KRG and MET-treated groups were also decreased by 11.0% and 18.9% compared to that of DC group, respectively. Plasma triglyceride and non-esterified fatty acid levels were decreased by 18.8% and 16.8%, respectively, and plasma adiponectin and leptin levels were increased by 20.6% and 12.1%, respectively, in the KRG-treated group compared to those in DC group. Histological analyses of the liver and fat tissue of mice treated with KRG revealed significantly decreased number of lipid droplets and decreased size of adipocytes compared to the DC group. From the pancreatic islet double-immunofluorescence staining, we observed KRG has increased insulin contents, but decreased glucagon production. To elucidate action mechanism of KRG, effects on AMP-activated protein kinase (AMPK) and its downstream target proteins responsible for fatty acid oxidation and gluconeogenesis were explored in the liver. KRG activated AMPK and acetyl-coA carboxylase (ACC) phosphorylations, resulting in stimulation of fatty acid oxidation. KRG also caused to down regulation of SREBP1a and its target gene expressions such as FAS, SCD1 and GPAT. In summary, our results suggest that KRG exerted the anti-diabetic effect through AMPK activation in the liver of db/db mice.