Islet transplantation (IT) is considered the most effective endocrine replacement therapy for diabetes mellitus (DM). Studies have demonstrated that IT can repair testicular structural injury caused by inflammatory and oxidative stress in a diabetic rat model. However, highly effective exogenous antioxidant and anti-inflammatory drugs can achieve this effect. Testicular interstitial fibrosis caused by long-term hyperglycemia is however difficult to reverse or recover. Thus far, there are no effective drugs that prevent or relieve testicular interstitial fibrosis. Therefore, it is necessary to explore the potential benefit of IT on testicular interstitial fibrosis induced by DM and its underlying molecular mechanisms. In the present study, Wistar rats were used to establish a DM model by intraperitoneal injection of streptozotocin. The diabetic models then underwent IT or received insulin treatment after 12 weeks. IT was more effective than insulin treatment in ameliorating diabetic-induced testicular interstitial fibrosis, Leydig cells apoptosis, testosterone deficiency and poor sperm motility. IT and insulin treatment both significantly inhibited the upregulation of TGF-β1 and phosphorylated Smad2 in DM, with IT being more effective than insulin. The present study's findings proved that IT effectively protects diabetic-induced testicular interstitial fibrosis probably by inhibiting the TGF-β1/Smad2 signaling pathway, which offers hope in male patients with DM complicating with testicular interstitial fibrosis.