OBJECTIVE: To examine the mechanisms of action, therapeutic potential, and challenges inherent in the use of incretin peptides and dipeptidyl peptidase-IV (DPP-IV) inhibitors for the treatment of type 2 diabetes. RESEARCH DESIGN AND METHODS: The scientific literature describing the biological importance of incretin peptides and DPP-IV inhibitors in the control of glucose homeostasis has been reviewed, with an emphasis on mechanisms of action, experimental diabetes, human physiological experiments, and short-term clinical studies in normal and diabetic human subjects. RESULTS: Glucagon-like peptide 1 (GLP-1) and glucose-dependent insulinotropic peptide (GIP) exert important effects on beta-cells to stimulate glucose-dependent insulin secretion. Both peptides also regulate beta-cell proliferation and cytoprotection. GLP-1, but not GIP, inhibits gastric emptying, glucagon secretion, and food intake. The glucose-lowering actions of GLP-1, but not GIP, are preserved in subjects with type 2 diabetes. However, native GLP-1 is rapidly degraded by DPP-IV after parenteral administration; hence, degradation-resistant, long-acting GLP-1 receptor (GLP-1R) agonists are preferable agents for the chronic treatment of human diabetes. Alternatively, inhibition of DPP-IV-mediated incretin degradation represents a complementary therapeutic approach, as orally available DPP-IV inhibitors have been shown to lower glucose in experimental diabetic models and human subjects with type 2 diabetes. CONCLUSIONS: GLP-1R agonists and DPP-IV inhibitors have shown promising results in clinical trials for the treatment of type 2 diabetes. The need for daily injections of potentially immunogenic GLP-1-derived peptides and the potential for unanticipated side effects with chronic use of DPP-IV inhibitors will require ongoing scrutiny of the risk-benefit ratio for these new therapies as they are evaluated in the clinic.