Monascin is a major yellow compound from red mold dioscorea. We investigated monascin to test whether this compound acts as an antidiabetic and antioxidative stress agent in diabetic rats and Caenorhabditis elegans. The mechanisms by which monascin exerts its action in vivo were also examined. Streptozotocin (STZ)-induced diabetic rats were given monascin at 30 mg/kg/day and sacrificed after 8 weeks. Blood glucose and serum insulin, triglyceride, total cholesterol, and high-density lipoprotein and antioxidative enzymes in the pancreas of rats were measured. In addition, monascin was evaluated for stress resistance and potential associated mechanisms in C. elegans. Throughout the 8-week experimental period, significantly lowered blood glucose, serum triglyceride, and total cholesterol and higher high-density lipoprotein levels were observed in monascin-treated rats. Monascin-treated rats showed higher serum insulin level, lower reactive oxygen species production, and higher activities of glutathione peroxidase, superoxide dismutase, and catalase in the pancreas compared to diabetic control rats. In addition, monascin significantly induced the hepatic mRNA levels of FOXO3a, FOXO1, MnSOD, and catalase in STZ-induced diabetic rats. Monascin-treated C. elegans showed an increased survival rate during oxidative stress and heat stress treatments compared to untreated controls. Moreover, monascin extended the life span under high-glucose conditions and enhanced expression of small heat shock protein (sHSP-16.2), superoxide dismutase (SOD-3), and glutathione S-transferase (GST-4) in C. elegans. Finally, we showed that monascin affected the subcellular distribution of the FOXO transcription factor DAF-16, whereas it was unable to enhance oxidative stress resistance in the daf-16 deletion mutant in C. elegans. Mechanistic studies in rats and C. elegans suggest that the protective effects of monascin are mediated via regulation of the FOXO/DAF-16-dependent insulin signaling pathway by inducing the expression of stress response/antioxidant genes, thereby enhancing oxidative stress resistance.