Bioprospecting of more novel probiotic strains has attained continuous interest. This study aimed to investigate the beneficial effects of Lactobacillus paracasei strain L14, an isolate from a traditional Chinese dairy product, on type 2 diabetes mellitus (T2DM) rats. Preventive supplementation of strain L14 showed excellent anti-diabetic effects on high-fat diet/low-dose streptozotocin (HFD/STZ)-induced T2DM rats. It significantly reduced hyperglycemia, protected pancreatic β-cell and liver function, and ameliorated oxidative stress while considerably improving dyslipidemia and inflammation. Furthermore, the strain modulated the gut microbiota to alleviate gut dysbiosis. Interestingly, most of these biochemical parameters could even restore to normal levels by the intervention of strain L14. The whole-genome sequencing of L14 was performed to provide a critical molecular basis for its probiotic activities. Genes related to antioxidant systems and other beneficial microbial metabolites like exopolysaccharides (EPS) biosynthesis were found. This study demonstrates that probiotic L. paracasei L14 has good potential for applications in functional food and pharmaceutical industries.