Metformin has been the mainstay of therapy for diabetes mellitus for many years; however, the mechanistic aspects of metformin action remained ill-defined. Recent advances revealed that this drug, in addition to its glucose-lowering action, might be promising for specifically targeting metabolic differences between normal and abnormal metabolic signalling. The knowledge gained from dissecting the principal mechanisms by which metformin works can help us to develop novel treatments. The centre of metformin's mechanism of action is the alteration of the energy metabolism of the cell. Metformin exerts its prevailing, glucose-lowering effect by inhibiting hepatic gluconeogenesis and opposing the action of glucagon. The inhibition of mitochondrial complex I results in defective cAMP and protein kinase A signalling in response to glucagon. Stimulation of 5′-AMP-activated protein kinase, although dispensable for the glucose-lowering effect of metformin, confers insulin sensitivity, mainly by modulating lipid metabolism. Metformin might influence tumourigenesis, both indirectly, through the systemic reduction of insulin levels, and directly, via the induction of energetic stress; however, these effects require further investigation. Here, we discuss the updated understanding of the antigluconeogenic action of metformin in the liver and the implications of the discoveries of metformin targets for the treatment of diabetes mellitus and cancer.