Objective To study the effect of Changpu Yujin Decoction on liver tissue pathology,insulin resistance（IR）and expression of liver sterol regulatory element binding protein-1 c（SREBP-1 c）of rats with type 2 diabetes mellitus（T2 DM）complicated with nonalcoholic fatty liver disease（NAFLD）. Methods A total of 32 SD rats were randomized into two groups: the control group of 8 and the model group of 24. The model group were induced T2 DM with NAFLD by streptozotocin（STZ）and high-fat diet. After successfully establishing the models,they were randomly divided into Chinese herbal medicine group,Metformin group and model group of 8 each. The Chinese herbal medicine group was given Changpu Yujin Decoction solution. The Metformin group was given the metformin powder suspension. The control group and the model group were given an equal volume of 0.9% sodium chloride aqueous solution. Eight weeks later,the rats were given anesthetic death for sampling. The pathological changes of liver in each group were observed by HE staining. The fasting blood glucose（FBG）and insulin content（INS）of each group were measured and the insulin resistance index（HOMA-IR）calculated. The level of expression of liver SREBP-1 c was determined by RT-PCR. Results Compared with the model group,Changpu Yujin Decoction could significantly alleviate the liver steatosis of T2 DM with NAFLD,reduce the levels of INS and HOMA-IR（P<0.05 or P<0.01）,and decrease the the level of SREBP-1 c expression in the liver. Conclusion Changpu Yujin Decoction has a significant therapeutic effect on T2 DM with NAFLD in rats. The mechanism may be related to the reduction of SREBP-1 c expression,thereby reducing liver fat deposition,cell degeneration and alleviate IR.