Metformin is a widely-used drug that results in clear benefits in relation to glucose metabolism and diabetes-related complications. The mechanisms underlying these benefits are complex and still not fully understood. Physiologically, metformin has been shown to reduce hepatic glucose production, yet not all of its effects can be explained by this mechanism and there is increasing evidence of a key role for the gut. At the molecular level the findings vary depending on the doses of metformin used and duration of treatment, with clear differences between acute and chronic administration. Metformin has been shown to act via both AMP-activated protein kinase (AMPK)-dependent and AMPK-independent mechanisms; by inhibition of mitochondrial respiration but also perhaps by inhibition of mitochondrial glycerophosphate dehydrogenase, and a mechanism involving the lysosome. In the last 10 years, we have moved from a simple picture, that metformin improves glycaemia by acting on the liver via AMPK activation, to a much more complex picture reflecting its multiple modes of action. More work is required to truly understand how this drug works in its target population: individuals with type 2 diabetes.