The recent increase in the prevalence of obesity has been associated with a coincident rise in the prevalence of Type 2 diabetes, whereas weight loss has been shown to decrease the risk of Type 2 diabetes. The pathophysiological mechanisms that have been proposed to explain this link are fundamentally concerned with insulin resistance and the decline in pancreatic B-cell function that accompanies an increase in visceral obesity. They involve the rise in the plasma concentrations of free fatty acids (FFAs) that are associated with an increase in fat mass. Elevated levels of FFAs can lead to insulin resistance, and evidence is growing that B-cell function is impaired through lipotoxicity. Factors such as tumour necrosis factor-α (TNF-α) and adiponectin, released from adipose tissue, can also modulate insulin resistance. Many interventions that are helpful in treating or preventing Type 2 diabetes, such as weight loss and certain pharmacological interventions, reduce circulating FFA concentrations to a greater or lesser extent. Recent study results suggest that peroxisome proliferator-activated receptor (PPAR)γ agonists have an effect on the development of Type 2 diabetes. However, in light of concerns over the apparent increase in congestive heart failure with PPARγ agonists, their place in the prevention of Type 2 diabetes remains to be determined.