Autophagy has been reported to involve in the pathogenesis of type 2 diabetes mellitus (T2DM), which protects the insulin target tissues and pancreatic 0-cells. However, autophagy is inhibited when the cells are lipid overload. That, in turn, increases the accumulation of fat. Lipotoxicity caused by excessive lipid accumulation contributes to pathogenesis of T2DM. Therefore, it is undeniable to break the vicious circles between lipid excess and autophagy deficiency. Lipophagy, a selective form of autophagy, is characterized by selective breakdown of lipid droplets (LDs). The nutritional status of cells contributes to the way of autophagy (selective or non-selective), while selective autophagy helps to accurately remove excess substances. It seems that lipophagy could be an effective means to decrease abnormal lipid accumulation that leads to insulin resistance and 0-cell impairment by removing ectopic LDs. Based on this process, many natural compounds have been reported to decrease lipid accumulation in tissues through autophagy-lysosomal pathway, which gradually highlights the significance of lipophagy. In this review, we focus on the mechanisms that lipophagy improves T2DM and natural products that are applied to induce lipophagy. It is also suggested that natural herbs with rich contents of natural products inducing lipophagy would be potential candidates for alleviating T2DM.