This study was carried to investigate the antidiabetic and lipid metabolism of water extract paecilomyces japonica(PJ) in Streptozotocin (STZ) induced diabetic rats. Diabetes were induced by intravenous injection of STZ at a dose of 42mg/kg dissolved in citrate buffer. The water extract of paecilomyces japonica were orally administrated once a day for 7 days at a dose of 500mg/kg or 1,000mg/kg. The contents of serum glucose, triglyceride(TG), total cholesterol were significantly decreased in PJ treated group compared to the those of STZ-control group. The content of hepatic glycogen and activities of glucose-6-phosphate dehydrogenase(G-6-PDH), glucokinase(GK) were significantly increased, but activity of glucose-6-phoshatase(G-6-Pase) was significantly decreased in PJ treated group compared to the those of STZ-control group. These results indicated that water extract of paecilomyces japonica would have antidiabetic and lipid metabolism effect in STZ-induced diabetic rats.