Metformin is widely used in the treatment of diabetes mellitus type 2 where it reduces insulin resistance and diabetes-related morbidity and mortality. Population-based studies show that metformin treatment is associated with a dose-dependent reduction in cancer risk. The metformin treatment also increases complete pathological tumour response rates following neoadjuvant chemotherapy for breast cancer, suggesting a potential role as an anti-cancer drug. Diabetes mellitus type 2 is associated with insulin resistance, elevated insulin levels and an increased risk of cancer and cancer-related mortality. This increased risk may be explained by activation of the insulin- and insulin-like growth factor (IGF) signalling pathways and increased signalling through the oestrogen receptor. Reversal of these processes through reduction of insulin resistance by the oral anti-diabetic drug metformin is an attractive anti-cancer strategy. Metformin is an activator of AMP-activated protein kinase (AMPK) which inhibits protein synthesis and gluconeogenesis during cellular stress. The main downstream effect of AMPK activation is the inhibition of mammalian target of rapamycin (mTOR), a downstream effector of growth factor signalling. mTOR is frequently activated in malignant cells and is associated with resistance to anticancer drugs. Furthermore, metformin can induce cell cycle arrest and apoptosis and can reduce growth factor signalling. This review discusses the role of diabetes mellitus type 2 and insulin resistance in carcinogenesis, the preclinical rationale and potential mechanisms of metformin's anti-cancer effect and the current and future clinical developments of metformin as a novel anti-cancer drug.