Dipeptidyl peptidase-4 (DPP-4) inhibitors exert their antihyperglycemic effects through repressing inactivation of certain incretin hormones and thus increasing insulin secretion and controlling glucose level. In this study, the plasma concentrations of sitagliptin, a potent DPP-4 inhibitor, after a single oral dose of 300 mg/kg in streptozotocin-induced type 2 diabetic rats were determined by HPLC. A one-compartment pharmacokinetic (PK) model with first order absorption was developed to describe the PK profile of sitagliptin, and the drug concentrations at the doses given in the pharmacodynamic (PD) study were simulated accordingly. The dynamic changes in DPP-4 activity, insulin concentration and blood glucose level in diabetic rats at doses of 1, 5 and 10 mg/kg were measured, and a mechanism-based PK/PD model was established subsequently. In this model, the inhibitory effect of sitagliptin on DPP-4 activity was demonstrated using the Hill’s function with direct link, and the downstream increase in insulin secretion and inhibition of glucose production were characterized using indirect response (IDR) models. This model interpreted the mechanism of antihyperglycemic action of sitagliptin, and may be modified and applied to other species or other agents in this class.