OBJECTIVES: Mesenchymal stem cells (MSCs) are potentially ideal for type 2 diabetes treatment, owing to their multidirectional differentiation ability and immunomodulatory properties. Here we investigated whether the stem cells from human exfoliated deciduous teeth (SHED) in combination with hyperbaric oxygen (HBO) could treat type 2 diabetic rats, and explored the underlying mechanism. METHODS: SD rats were used to generate a type 2 diabetes model, which received stem cell therapy, HBO therapy, or both together. Before and after treatment, body weight, blood glucose, and serum insulin, blood lipid, pro-inflammatory cytokines (tumor necrosis factor-alpha and interleukin-6), and urinary proteins were measured and compared. After 6 weeks, rats were sacrificed and their organs were subjected to hematoxylin and eosin staining and immunofluorescence staining for insulin and glucagon; apoptosis and proliferation were analyzed in islet cells. Structural changes in islets were observed under an electron microscope. Expression levels of Pdx1, Ngn3, and Pax4 mRNAs in the pancreas were assessed by real-time quantitative polymerase chain reaction (RT-qPCR). RESULTS: In comparison with diabetic mice, those treated with the combination or SHE therapy showed decreased blood glucose, insulin resistance, serum lipids, and pro-inflammatory cytokines and increased body weight and serum insulin. The morphology and structure of pancreatic islets improved, as evident from an increase in insulin-positive cells and a decrease in glucagon-positive cells. Terminal deoxynucleotidyl transferase-mediated dUTP nick end labeling (TUNEL) staining of islet cells revealed the decreased apoptosis index, while Ki67 and proliferating cell nuclear antigen staining showed increased proliferation index. Pancreatic expression of Pdx1, Ngn3, and Pax4 was upregulated. CONCLUSION: SHED combined with HBO therapy was effective for treating type 2 diabetic rats. The underlying mechanism may involve SHED-mediated increase in the proliferation and trans-differentiation of islet β-cells and decrease in pro-inflammatory cytokines and apoptosis of islets.