Type 2 diabetes mellitus (T2DM) is a progressive, metabolic disorder characterized by reduced insulin sensitivity and loss of beta-cell mass (BCM), resulting in hyperglycemia. Population pharmacokinetic-pharmacodynamic (PKPD) modeling is a valuable method to gain insight into disease and drug action. A semi-mechanistic PKPD model incorporating fasting plasma glucose (FPG), fasting insulin, insulin sensitivity, and BCM in patients at various disease stages was developed. Data from 3 clinical trials (phase II/III) with a peroxisome proliferator-activated receptor agonist, tesaglitazar, were used to develop the model. In this, a modeling framework proposed by Topp et al was expanded to incorporate the effects of treatment and impact of disease, as well as variability between subjects. The model accurately described FPG and fasting insulin data over time. The model included a strong relation between insulin clearance and insulin sensitivity, predicted 40% to 60% lower BCM in T2DM patients, and realistic improvements of BCM and insulin sensitivity with treatment. The treatment response on insulin sensitivity occurs within the first weeks, whereas the positive effects on BCM arise over several months. The semi-mechanistic PKPD model well described the heterogeneous populations, ranging from nondiabetic, insulin-resistant subjects to long-term treated T2DM patients. This model also allows incorporation of clinical-experimental studies and actual observations of BCM.