Objective To investigate the effect of Danzhi Jiangtang Capsule, a traditional Chinese medicine (TCM) compound formulation with Qi-tonifying and blood-activating functions, in improving related indices of insulin resistance and lipotoxicity in patients with type 2 diabetes mellitus (T2DM) and obesity. Methods A total of 80 patients with T2DM and obesity were randomly divided into treatment group and control group, with 40 patients in each group. The patients in the control group were given conventional hypoglycemic and lipid-lowering therapy, and those in the treatment group were given oral administration of the TCM compound formulation Danzhi Jiangtang Capsule in addition to the treatment in the control group; the course of treatment was 4 weeks for both groups. The two groups were compared in terms of the changes in fasting plasma glucose (FPG), 2-hour postprandial blood glucose (2hPG), homeostasis model assessment of insulin resistance (HOMA-IR), triglyceride (TG), total cholesterol, high-density lipoprotein cholesterol (HDL-C), low-density lipoprotein cholesterol, apolipoprotein B (APO-B), and uric acid (UA) after treatment. Results During follow-up at the outpatient service after 4 weeks of treatment, both groups had significant reductions in FPG, 2hPG, HOMA-IR, TG, APO-B, and UA and a significant increase in HDL-C (P<0.05), and compared with the control group, the treatment group had significantly greater reductions in FPG, HOMA-IR, TG, UA, and APO-B (P<0.05). Conclusion In patients with T2DM and obesity, Danzhi Jiangtang Capsule can significantly reduce HOMA-IR, TG, and UA, effectively improve insulin resistance and lipotoxicity, and thus prevent and control the progression of diabetes.