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As societies age worldwide, diabetic sarcopenia has become increasingly common. The development of this disorder involves intricate pathophysiological processes, with contributions from multiple mechanisms: insulin resistance, ongoing inflammatory responses, oxidative damage, buildup of advanced glycation end products (AGEs), compromised mitochondrial function, and alterations in gut microbial composition. The present review comprehensively analyzes the epidemiological patterns and pathological processes associated with diabetic sarcopenia, with special attention to the therapeutic benefits and mechanistic insights of traditional Chinese medicine (TCM). Rooted in substantial clinical experience, TCM implements multitargeted therapeutic approaches using both classical compound formulas (e.g., Sijunzi decoction, Buzhong Yiqi decoction, Bazhen decoction, and Shenling Baizhu powder) and purified bioactive constituents from individual herbs (including astragalus polysaccharide, puerarin, Lycium barbarum extract, and magnesium tanshinate). The therapeutic effects encompass optimization of glucose metabolism, stimulation of muscle protein synthesis, inhibition of proteolysis, and reduction of inflammatory and oxidative damage-demonstrating the holistic TCM advantage of "co-treatment of glucose metabolism and muscle function." This work provides scientific rationale and clinical evidence to support TCM-based strategies for preventing and treating diabetic sarcopenia.