Type 2 diabetes mellitus (T2DM) is an increasingly prevalent chronic condition, characterized by abnormally elevated blood glucose concentrations and, as a consequence, increased risk of micro- and macrovascular complications. Metformin is usually the first-line glucose-lowering medication in T2DM; however, despite being used for more than 60 years, the mechanism underlying the glucose-lowering action of metformin remains incompletely understood. Although metformin reduces hepatic glucose production, there is persuasive evidence that the gastrointestinal tract is crucial in mediating this effect, particularly via secretion of the incretin hormone glucagon-like peptide 1 (GLP-1). It is now well recognized that bile acids, in addition to their established function in fat digestion and absorption, are important regulators of glucose metabolism. Exposure of the small and large intestine to bile acids induces GLP-1 secretion, modulates the composition of the gut microbiota, and reduces postprandial blood glucose excursions in humans with and without T2DM. Metformin reduces intestinal bile acid resorption substantially, such that intraluminal bile acids may, at least in part, account for its glucose-lowering effect. The present review focuses on the conceptual shift in our understanding as to how metformin lowers blood glucose in T2DM, with a particular emphasis on the role of intestinal bile acids.