Thiazolidinediones (TZDs) improve glycemic control and insulin sensitivity in patients with type 2 diabetes mellitus (T2DM). There is growing evidence from in vivo and in vitro studies that TZDs improve pancreatic β-cell function. The aim of this study was to determine whether TZD-induced improvement in glycemic control is associated with improved β-cell function. We studied 11 normal glucose-tolerant and 53 T2DM subjects [age 53 ± 2 yr; BMI 29.4 ± 0.8 kg/m²; fasting plasma glucose (FPG) 10.3 ± 0.4 mM; Hb A_1c 8.2 ± 0.3%]. Diabetic patients were randomized to receive placebo or TZD for 4 mo. Subjects received 1) 2-h OGTT with determination of plasma glucose, insulin, and C-peptide concentrations and 2) two-step euglycemic insulin (40 and 160 mUm⁻²min⁻¹) clamp with [3-³H]glucose. T2DM patients were then randomized to receive 4 mo of treatment with pioglitazone (45 mg/day), rosiglitazone (8 mg/day), or placebo. Pioglitazone and rosiglitazone similarly improved FPG, mean plasma glucose during OGTT, Hb A_1c, and insulin-mediated total body glucose disposal (R_d) and decreased mean plasma FFA during OGTT (all P < 0.01, ANOVA). The insulin secretion/insulin resistance (disposition) index [ΔISR(AUC)/Δglucose(AUC) ÷ IR] was significantly improved in all TZD-treated groups: +1.8 ± 0.7 (PIO + drug-naïve diabetics), +0.7 ± 0.3 (PIO + sulfonylurea-treated diabetics), and 0.7 ± 0.2 (ROSI + sulfonylurea-withdrawn diabetics) vs. −0.2 ± 0.3 in the two placebo groups (P < 0.01, all TZDs vs. placebo, ANOVA). Improved insulin secretion correlated positively with increased body weight, fat mass, and R_d and inversely with decreased plasma glucose and FFA during the OGTT. In T2DM patients, TZD treatment leads to improved β-cell function, which correlates strongly with improved glycemic control.