Abstract: The present study was designed to investigate the hypoglycemic and hypolipidemic activity of aqueous extract of Monascus fermented Indian variety rice in high cholesterol fed-streptozotocin-induced diabetic rats. Wister rats were fed with high cholesterol diet for 2 weeks prior to intra-peritoneal injection with streptozotocin (50 mg kg-1). The Indian variety rice IR-532-E-576 was fermented with Monascus purpureus for 10 days and sterilized. Aqueous extract of the fermented rice at two dose levels showed a significant decrease in fasting blood glucose level. The total cholesterol and triglycerides were also significantly reduced where as the HDL cholesterol levels were significantly increased, which confirmed the potent anti-diabetic property of the Monascus purpureus fermented rice in diabetic rats, which may be due to presence of statins.