Antidiabetic effect of the water extract of Aquilaria crassna (A. crassna) leaves was recently claimed by some diabetic patients in Thailand, whereas its experimental evidence has not been published yet. The present study was therefore conducted to investigate pharmacological activities of the water extract of A. crassna leaves, focusing on its antioxidative and hypoglycemic effects in vitro and in vivo using streptozotocin (STZ)-nicotinamide (NA)-induced type 2 diabetic (DM) mice. An antioxidant activity of the herb extract was confirmed using a 2,2-diphenyl-1-picrylhydrazyl hydrate (DPPH) radical scavenging assay, and its IC50 on DPPH inhibition was determined to be 34.6 μg/mL. The extract also inhibited α-glucosidase in a concentration-dependent manner with the IC50 of 36.3 μg/mL. An enzyme-kinetic analysis using a Lineweaver-Burk plot indicated that the inhibition of α-glucosidase by the herb extract is an uncompetitive type with the inhibition constant (K(i)) of 39.8 μg/mL. An intragastric pretreatment of 1,000 mg/kg A. crassna in STZ-NA-induced type-2 DM significantly lowered the blood glucose at 30 and 60 min after an oral loading of 2 g/kg glucose (p < 0.05 and p < 0.01, respectively), as compared with the untreated-diabetic control. After 4 weeks-daily administration of 500 and 1,000 mg/kg A. crassna extract, the blood glucose levels were significantly reduced by about 66% and 86%, respectively, as compared with the untreated-diabetic control (p < 0.01). However, the expression of GLUT4 in skeletal muscle, detected by ELISA, was not significantly changed with the herb extract. In conclusion, our findings are the first to clearly demonstrate the hypoglycemic effects of A. crassna and to propose the α-glucosidase inhibition as an antidiabetic mechanism of the herb activity.