Type 2 diabetes mellitus (T2DM) is mainly caused by defective insulin secretion and insulin resistance of islet β cells. Palmitic acid is one of the most abundant free fatty acids in the human body. When its content in the body is too high, it is easy to cause lipid metabolism disorder and induce islet β cells dysfunction and insulin resistance, which are closely related to the occurrence and development of T2DM. However, the specific mechanism is not precise. The function of islet β cells could be affected by oxidative stress and endoplasmic reticulum stress (ERS) induced by palmitic acid. It is also the critical pathway for destroying insulin signaling. Palmitic acid aggravates oxidative stress by increasing mitochondrial oxidation, diacyl glycerol-protein kinase C-nicotinamide adenine dinucleotide phosphate pathway, changing the normal function of the mitochondrial respiratory chain and inflammatory stimulation. It also affects the folding ability of the endoplasmic reticulum, destroys the intracellular protein transport pathway, upregulates unfolded protein response-related transcription factors, makes palmitoylation, degrades carboxypeptidase E, and reduces Ca2+ in the endoplasmic reticulum to promote ERS. Both promote islet β cells dysfunction and apoptosis, ultimately leading to the occurrence and development of T2DM. This paper reviewed the relationship between palmitic acid and islet β cells, the correlation between intracellular oxidative stress and ERS and the potential Chinese and Western medicine-targeted intervention drugs such as protein kinases R inhibitor, Ginsenoside Rg1 and Sanhuang Decoction. It would provide a novel idea for the clinical treatment of T2DM.