Persistent hyperglycaemia coupled with inflammation plays an important role in the pathogenesis of diabetic nephropathy (DN). Present study examined the therapeutic potential of taraxerol isolated from the methanol extract of Abroma augusta leaf against DN using rodent model of type 2 diabetes (T2D). T2D was experimentally induced by high fat diet and a single low-single dose of streptozotocin (35mg/kg, i.p.). Accumulation of serum creatinine, urea, and uric acid, activation of lactate dehydrogenase and creatinin kinase, and release of urinary albumin represented the glomerular damage and the progression of nephropathy in T2D rats. Taraxerol (20mg/kg, p.o.) treatment significantly reinstated the aforementioned changes in biochemical parameters near to normalcy. Molecular mechanism studies demonstrated an impaired signaling cascade, IRS1/PI3K/Akt/AMPK/GLUT4/GSK3β, of glucose metabolism in the skeletal muscle and increase in serum levels of pro-inflammatory cytokines, CRP and MCP1 in T2D rats. Activation of polyol pathway, enhanced production of AGEs, up-regulation of NF-κB/PKCs/PARP signaling, and renal fibrosis was also observed in T2D rats. Taraxerol (20mg/kg, p.o.) treatment stimulated glucose metabolism in skeletal muscle, regulated blood glycaemic status and lipid profile in the sera, reduced the secretion of pro-inflammatory cytokines, and restored the renal physiology in T2D rats. Histological assessments were also in agreement with the above findings. Molecular docking study again supported the probable interactions of taraxerol with PKCβ, PKCδ, NF-κB, PARP, PI3K, IRS, Akt and AMPK. In silico ADME study predicted the drug-likeness character of taraxerol. Results suggest a possibility of taraxerol to be a new therapeutic agent for DN in future.