Previous studies suggested that licorice possessed hypoglycemic activity, but its anti-diabetic mechanism has not been clearly illustrated. Herein, we aimed to investigate the hypoglycemic activity and underlying hypoglycemic mechanisms of licorice extract (20, 40, and 80 mg kgday) in type 2 diabetes mice. The results showed that licorice extract could improve the levels of fasting blood glucose, insulin resistance, serum lipids, and endotoxemia-related colonic inflammation in diabetic mice in a dose-dependent manner. Western blots also suggested that a high-dose licorice extract could effectively decrease the levels of nuclear factor kappa-B (NF-κB), toll-like receptor 4 (TLR4), and tumor necrosis factor-α (TNF-α) in colon of diabetic mice. More importantly, all the doses of licorice extract reshaped the gut microbiota by decreasing the contents of Lachnospiraceae_NK4A136_group at the genus level and increasing the contents of Alloprevotella, Bacteroides, and Akkermansia, especially for the high-dose of licorice extract. These results indicated that the anti-diabetic effect of licorice extract might be attributed to the regulation of the gut microbiota and the colon TLR4/NF-κB signaling pathway in diabetic mice. Thus, licorice extract can be a promising dietary agent to improve type 2 diabetes.