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AIM To investigate the inhibitory effect of Liuwei Dihuang Pill (LDP) on gastric tumorigenesis induced by N-methyl-N-nitrosourea (MNU) in diabetic mice. METHODS Four-week-old mice were divided into four groups: A, 12 db/m mice treated with MNU and saline, as the non-diabetic control; B, 12 db/db mice treated with MNU and saline, as the diabetic control; C, 12 db/db mice treated with MNU and metformin, as the positive control; and D, 12 db/db mice treated with MNU and LDP. MNU was administrated for 20 wk to induce gastric carcinogenesis. LDP was administrated for 10 wk for improvement of insulin resistance. Body weight and food intake were measured every week. Blood samples were collected for assays of fasting blood glucose, insulin, insulin-like growth factor (IGF)-1, adiponectin and leptin. Stomach tissues were collected for histopathological analysis, immunohistochemical staining of Ki67, quantitative reverse transcription-polymerase chain reaction and western blotting. RESULTS The incidence of MNU-induced gastric dysplasia was significantly elevated in diabetic (db/db) mice relative to the control (db/m) mice. The incidence of gastric dysplasia was significantly reduced by LDP with suppression of cell proliferation, as demonstrated by a decrease in Ki67 staining. Hyperglycemia, hyperinsulinemia and serum IGF-1 were inhibited by LDP. Expression of IGF-1 and insulin receptor mRNAs was decreased, phosphorylation of IGF-1 receptor and AKT protein was reduced in the stomach tissues by LDP. In addition, adiponectin was increased and leptin was decreased in the serum by LDP. CONCLUSION LDP decreased risk of gastric dysplasia in type 2 diabetic mice by down-regulation of IGF and insulin activity and correction of adipokines disorders.