Chronically elevated concentrations of non‐esterified fatty acids (NEFAs) in type 2 diabetes may be involved in β‐cell dysfunction and apoptosis. It has been shown that long‐chain saturated NEFAs exhibit a strong cytotoxic effect upon insulin‐producing cells, while short‐chain as well as unsaturated NEFAs are well tolerated. Moreover, long‐chain unsaturated NEFAs counteract the toxicity of palmitic acid. Reactive oxygen species (ROS) formation and gene expression analyses together with viability assays in different β‐cell lines showed that the G‐protein‐coupled receptors 40 and 120 do not mediate lipotoxicity. This is independent from the role, which these receptors, specifically GPR40, play in the potentiation of glucose‐induced insulin secretion by saturated and unsaturated long‐chain NEFAs. Long‐chain NEFAs are not only metabolized in the mitochondria but also in peroxisomes. In contrast to mitochondrial β‐oxidation, the acyl‐coenzyme A (CoA) oxidases in the peroxisomes form hydrogen peroxide and not reducing equivalents. As β‐cells almost completely lack catalase, they are exceptionally vulnerable to hydrogen peroxide generated in peroxisomes. ROS generation in the respiratory chain is less important because overexpression of catalase and superoxide dismutase in the mitochondria do not provide protection. Thus, peroxisomally generated hydrogen peroxide is the likely ROS that causes pancreatic β‐cell dysfunction and ultimately β‐cell death.