Non-insulin-dependent diabetes mellitus (NIDDM) is characterized by fasting hyperglycemia associated with defects in the pancreatic islet, the liver, and the peripheral tissues, which together comprise a feedback loop responsible for maintenance of glucose homeostasis. This review focuses on the key role of the endocrine pancreas alpha and beta cells to coordinate glucose output from the liver with glucose utilization. The basal rate of hepatic glucose utilization. The basal rate of hepatic glucose production is elevated in subjects with NIDDM, and this is positively correlated with the degree of fasting hyperglycemia. This increased rate of glucose release by the liver results from impaired hepatic sensitivity to insulin, reduced insulin secretion, and increased glucagon secretion. Though basal immunoreactive insulin levels in patients with NIDDM may appear normal when compared with healthy individuals, islet function testing at matched glucose levels reveals impairments of basal, steady-state, and stimulated insulin secretion due to a reduction in beta-cell secretory capacity and a reduced ability of glucose to suppress glucagon. The degree of impaired beta-cell responsiveness to glucose is closely related to the degree of fasting hyperglycemia but in a curvilinear fashion. The efficiency of glucose uptake by the peripheral tissues is also impaired due to a combination of decreased insulin secretion and defective cellular insulin action. This impairment becomes more important to the hyperglycemia as the islet alpha- and beta-cell function declines. Therapeutic interventions, to be effective, must reduce hepatic glucose production either by improving islet dysfunction and raising plasma insulin levels, or improving the effectiveness of insulin on the liver. Both result in a decline in the fasting glucose levels regardless of the cause of hyperglycemia. We conclude that NIDDM is characterized by a steady-state re-regulation of plasma glucose concentration at an elevated level in which islet dysfunction plays a necessary role. Treatment should be based on this physiologic understanding.