To explore the clinical effect of Danzhi Xiaoyao powder (DZXY) in treating type 2 diabetes mellitus (DM) according to Liver in TCM. Fifty-one type 2 DM patients were randomly divided into the treated group and the control group, 31 patients of the treated group were treated with conventional and DZXY therapy, while 20 patients in the control were treated with conventional therapy alone. Before and after treatment for 3 months, the levels of fasting blood glucose (FBG), fasting insulin, glycosylated hemoglobin (HbA1c), blood cholesterol (CH) and triglycerides (TG) were examined in all the patients. By the end of 3 months, the effect in treating type 2 DM in the treated group was better than that in the control group (P < 0.05). Compared with those before treatment in each group and those of the control, the levels of FBG, fasting insulin, HbA1c after DZXY treatment were reduced (P < 0.05), but levels of CH and TG in all groups had no significant difference. DZXY could soothe the Liver to relieve depression, which is effective in treating type 2 DM and could improve the symptoms of DM patients.