4-Methyl-2-[(2-methylbenzyl) amino]-1,3-thiazole-5-carboxylic acid (bioactive compound (BAC)), a novel thiazole derivative, is a xanthine oxidase inhibitor and free radical scavenging agent. Effects of BAC on hyperglycemia, insulin sensitivity, oxidative stress, and inflammatory mediators were evaluated in streptozotocin (STZ)-induced neonatal models of non-insulin-dependent diabetes mellitus (NIDDM) rats where NIDDM was induced in neonatal pups with single intraperitoneal injection of STZ (100 mg/kg). The effect of BAC (10 and 20 mg/kg, p.o.) for 3 weeks was evaluated by the determination of blood glucose, oral glucose tolerance test (OGTT), HbA1c level, insulin level, insulin sensitivity, and insulin resistance (IR). Furthermore, inflammatory mediators (tumor necrosis factor-alpha and interleukin-6) and oxidative stress were estimated in serum and pancreatic tissue, respectively. Significant alteration in the level of blood glucose, OGTT, HbA1c, insulin level, insulin sensitivity, in addition variation in the antioxidant status and inflammatory mediators, and alteration in histoarchitecture of pancreatic tissue confirmed the potential of BAC in STZ-induced neonatal models of NIDDM rats. Pretreatment with BAC restored the level of glucose by decreasing the IR and increasing the insulin sensitivity. Furthermore, BAC balanced the antioxidant status and preserved the inflammatory mediators. Histological studies of pancreatic tissues showed normal architecture after BAC administration to diabetic rats. Altogether, our results suggest that BAC successfully reduces the blood glucose level and possesses antioxidant as well as anti-inflammatory activities. This leads to decreased histological damage in diabetic pancreatic tissues, suggesting the possibility of future diabetes treatments.