Herein we designed, optimized, and characterized the Metformin Hydrochloride Transethosomes (MTF-TES) and incorporate them into Chitosan gel to develop Metformin Hydrochloride loaded Transethosomal gel (MTF-TES gel) that provides a sustained release, improved transdermal flux and improved antidiabetic response of MTF. Design Expert® software (Ver. 12, Stat-Ease, USA) was applied for the statistical optimization of MTF-TES. The formulation with Mean Particle Size Distribution (MPSD) of 165.4 ± 2.3 nm, Zeta Potential (ZP) of -21.2 ± 1.9 mV, Polydispersity Index (PDI) of 0.169 ± 0.033, and MTF percent Entrapment Efficiency (%EE) of 89.76 ± 4.12 was considered to be optimized. To check the chemical incompatibility among the MTF and other formulation components, Fourier Transform Infrared (FTIR) spectroscopy was performed and demonstrated with no chemical interaction. Surface morphology, uniformity, and segregation were evaluated through Transmission Electron Microscopy (TEM). It was revealed that the nanoparticles were spherical and round in form with intact borders. The fabricated MTF-TES has shown sustained release followed by a more pronounced effect in MTF-TES gel as compared to the plain MTF solution (MTFS) at a pH of 7.4. The MTF-TES has shown enhanced permeation followed by MTF-TES gel as compared to the MTFS at a pH of 7.4. In vivo antidiabetic assay was performed and results have shown improved antidiabetic potential of the MTF-TES gel, in contrast to MTF-gel. Conclusively, MTF-TES is a promising anti-diabetic candidate for transdermal drug delivery that can provide sustained MTF release and enhanced antidiabetic effect.