Type 2 diabetes is characterized by defects in insulin secretion and action and is preceded by impaired fasting glucose (IFG). The islet anatomy in IFG and type 2 diabetes reveals an approximately 50 and 65% deficit in beta-cell mass, with increased beta-cell apoptosis and islet amyloid derived from islet amyloid polypeptide (IAPP). Defects in insulin action include both hepatic and extrahepatic insulin resistance. The relationship between changes in beta-cell mass, beta-cell function, and insulin action leading to type 2 diabetes are unresolved, in part because it is not possible to measure beta-cell mass in vivo, and most available animal models do not recapitulate the islet pathology in type 2 diabetes. We evaluated the HIP rat, a human IAPP transgenic rat model that develops islet pathology comparable to humans with type 2 diabetes, at age 2 months (nondiabetic), 5 months (with IFG), and 10 months (with diabetes) to prospectively examine the relationship between changes in islet morphology versus insulin secretion and action. We report that increased beta-cell apoptosis and impaired first-phase insulin secretion precede the development of IFG, which coincides with an approximately 50% defect in beta-cell mass and onset of hepatic insulin resistance. Diabetes was characterized by approximately 70% deficit in beta-cell mass, progressive hepatic and extrahepatic insulin resistance, and hyperglucagonemia. We conclude that IAPP-induced beta-cell apoptosis causes defects in insulin secretion and beta-cell mass that lead first to hepatic insulin resistance and IFG and then to extrahepatic insulin resistance, hyperglucagonemia, and diabetes. We conclude that a specific beta-cell defect can recapitulate the metabolic phenotype of type 2 diabetes and note that insulin resistance in type 2 diabetes may at least in part be secondary to beta-cell failure.