The relative contributions of insulin resistance and beta-cell dysfunction to the pathophysiology of Type 2 diabetes have been debated extensively. The concept that a feedback loop governs the interaction of the insulin-sensitive tissues and the beta cell as well as the elucidation of the hyperbolic relationship between insulin sensitivity and insulin secretion explains why insulin-resistant subjects exhibit markedly increased insulin responses while those who are insulin-sensitive have low responses. Consideration of this hyperbolic relationship has helped identify the critical role of beta-cell dysfunction in the development of Type 2 diabetes and the demonstration of reduced beta-cell function in high risk subjects. Furthermore, assessments in a number of ethnic groups emphasise that beta-cell function is a major determinant of oral glucose tolerance in subjects with normal and reduced glucose tolerance and that in all populations the progression from normal to impaired glucose tolerance and subsequently to Type 2 diabetes is associated with declining insulin sensitivity and beta-cell function. The genetic and molecular basis for these reductions in insulin sensitivity and beta-cell function are not fully understood but it does seem that body-fat distribution and especially intra-abdominal fat are major determinants of insulin resistance while reductions in beta-cell mass contribute to beta-cell dysfunction. Based on our greater understanding of the relative roles of insulin resistance and beta-cell dysfunction in Type 2 diabetes, we can anticipate advances in the identification of genes contributing to the development of the disease as well as approaches to the treatment and prevention of Type 2 diabetes.