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Salacia oblonga (SO) root is an Ayurvedic medicine with anti-diabetic and anti-obese properties. Peroxisome proliferator-activated receptor (PPAR)-α, a nuclear receptor, plays an important role in maintaining the homeostasis of lipid metabolism. Here, we demonstrate that chronic oral administration of the water extract from the root of SO to Zucker diabetic fatty (ZDF) rats, a genetic model of type 2 diabetes and obesity, lowered plasma triglyceride and total cholesterol (TC) levels, increased plasma high-density lipoprotein levels and reduced the liver contents of triglyceride, non-esterified fatty acids (NEFA) and the ratio of fatty droplets to total tissue. By contrast, the extract had no effect on plasma triglyceride and TC levels in fasted ZDF rats. After olive oil administration to ZDF the extract also inhibited the increase in plasma triglyceride levels. These results suggest that SO extract improves postprandial hyperlipidemia and hepatic steatosis in ZDF rats. Additionally, SO treatment enhanced hepatic expression of PPAR-α mRNA and protein, and carnitine palmitoyltransferase-1 and acyl-CoA oxidase mRNAs in ZDF rats. In vitro, SO extract and its main component mangiferin activated PPAR-α luciferase activity in human embryonic kidney 293 cells and lipoprotein lipase mRNA expression and enzyme activity in THP-1 differentiated macrophages; these effects were completely suppressed by a selective PPAR-α antagonist MK-886. The findings from both in vivo and in vitro suggest that SO extract functions as a PPAR-α activator, providing a potential mechanism for improvement of postprandial hyperlipidemia and hepatic steatosis in diabetes and obesity.