Diabetes affects millions of people worldwide, and its chronic complications are a leading cause of death in many industrialized countries. In a minority of patients, diabetes is brought about by the auto-immune destruction of insulin-producing pancreatic beta cells (Type 1 diabetes). In the vast majority of patients, diabetes is brought about by a combination of genetic and environmental factors that affect the organism's ability to respond to insulin (Type 2 diabetes). This impairment is due to a complex abnormality involving insulin action at the periphery and insulin production in the beta cell. Genetic factors play a key role in the development of type 2 diabetes. However, the inheritance of diabetes is non-Mendelian in nature, due to genetic heterogeneity, polygenic pathogenesis and incomplete penetrance. For these reasons, many laboratories have developed "designer" mice bearing targeted mutations in genes of the insulin action and insulin secretion pathways in order to develop a better model for the inheritance and pathogenesis of type 2 diabetes. These mutant mice are beginning to challenge established paradigms in the pathogenesis of type 2 diabetes and to shed light onto the genetic interactions underlying its complex inheritance. Here we review recent progress in the field and assess its impact on human studies of the genetics, prevention and treatment of type 2 diabetes.