Nilgirianthus ciliatus Nees is used in traditional Indian system of medicine for the treatment of numerous physiological disorders. Previous investigations revealed that various bioactive compounds have been isolated from this plant for the treatment of various disorders. But these compounds may be unstable in gastrointestinal tract due to the elevated pH and harsh condition that renders the bioactive compounds ineffective. In order to improve the pharmacokinetic and pharmacodynamic properties of various drugs, nanoparticles were developed by various techniques. Nanoformulation of ethanolic extract of Nilgirianthus ciliatus was prepared by solvent evaporation technique using gelatin as carriers and evaluated its antidiabetic effects in L6 myoblasts and 3T3L1 adipocytes. The mean particle size of plant extract loaded gelatin nanoparticles was approximately 110 nm and they are spherical in shape on observation by transmission electron microscope. The ethanolic extract of Nilgirianthus ciliatus was encapsulated with 80% efficiency in gelatin biodegradable nanoparticles formulation. MTT assay was also performed to study the toxicity of nanoformulation; the nanoencapsulated form does not produce any toxicity upto 1000 μg/ml concentrations. Nanoformulation of Nilgirianthus ciliatus was evaluated for its antidiabetic activity by glucose uptake assay in L6 cells and anti-adipogenic assay in 3T3L1 preadipocytes. The plant extracts loaded nanoparticles showed significant antidiabetic effect in both assays in a dose dependent manner when compared to the ethanolic extract. After nanoencapsulation the aqueous dispersion is more, this may be the reason for the better antidiabetic effect. Therefore nanoencapsulated Nilgirianthus ciliatus could be considered as potential antidiabetic drug.