OBJECTIVE In adults, type 2 diabetes (T2DM) is characterized with progressive deterioration in insulin secretion. Data are scanty in youth. We investigated prospectively the change in β-cell function and in insulin sensitivity in youth with T2DM. METHODS Six adolescents with T2DM [hemoglobin A1c (HbA1c) 6.6 ± 1.0%] underwent evaluation of hepatic glucose production (HGP; [6,6-²H₂] glucose), insulin-stimulated glucose disposal (Rd; hyperinsulinemic-euglycemic clamp), first- and second-phase insulin/C-peptide secretion (hyperglycemic clamp), body composition dual energy X-ray absorptiometry (DEXA), and abdominal adiposity (computed tomography) within 3 yr of the diagnosis of diabetes and after 12-16 months of follow-up. RESULTS Weight, body mass index (37.1 ± 6.9), HbA1c (6.3 ± 0.7%), HGP (2.8 ± 1.2 mg/kg/min), and Rd (4.9 ± 3.4 mg/kg/min) did not change significantly from baseline. However, first-phase insulin and C-peptide declined (152.6 ± 261.2 vs. 75.9 ± 108.5 μU/mL, p = 0.028; 8.0 ± 6.3 vs. 5.9 ± 4.4 ng/mL, p = 0.048, respectively) with no significant change in second-phase insulin/C-peptide. The rate of decline in β-cell function was ∼20% per year. CONCLUSIONS After a median duration of 20 months of diabetes, youth with T2DM manifest a rapid decline in β-cell function with no significant changes in peripheral or hepatic insulin sensitivity. Interventions to retard this deterioration in β-cell function should be investigated.