Type 2 diabetes is characterized by reduced insulin secretion from the pancreas and overproduction of glucose by the liver. Glucagon-like peptide-1 (GLP-1) promotes glucose-dependent insulin secretion from the pancreas, while glucagon promotes glucose output from the liver. Taking advantage of the homology between GLP-1 and glucagon, a GLP-1/glucagon hybrid peptide, dual-acting peptide for diabetes (DAPD), was identified with combined GLP-1 receptor agonist and glucagon receptor antagonist activity. To overcome its short plasma half-life DAPD was PEGylated, resulting in dramatically prolonged activity in vivo. PEGylated DAPD (PEG-DAPD) increases insulin and decreases glucose in a glucose tolerance test, evidence of GLP-1 receptor agonism. It also reduces blood glucose following a glucagon challenge and elevates fasting glucagon levels in mice, evidence of glucagon receptor antagonism. The PEG-DAPD effects on glucose tolerance are also observed in the presence of the GLP-1 antagonist peptide, exendin(9–39). An antidiabetic effect of PEG-DAPD is observed in db/db mice. Furthermore, PEGylation of DAPD eliminates the inhibition of gastrointestinal motility observed with GLP-1 and its analogues. Thus, PEG-DAPD has the potential to be developed as a novel dual-acting peptide to treat type 2 diabetes, with prolonged in vivo activity, and without the GI side-effects.