The profile of insulin secretion and the role of proinsulin processing across the spectrum of glucose tolerance in obese youth have not been studied. The aims of this study were to define the role of insulin secretion and proinsulin processing in glucose regulation in obese youth. We performed hyperglycemic clamps to assess insulin secretion, applying a model of glucose-stimulated insulin secretion to the glucose and C-peptide concentration data. Thirty obese youth with normal glucose tolerance (NGT), 22 with impaired glucose tolerance (IGT), and 10 with type 2 diabetes were studied. The three groups had comparable anthropometric measures and insulin sensitivity. The glucose sensitivity of first-phase secretion showed a significant stepwise decline from NGT to IGT and from IGT to type 2 diabetes. The glucose sensitivity of second-phase secretion was similar in NGT and IGT subjects yet was significantly lower in subjects with type 2 diabetes. Proinsulin-to-insulin ratios were comparable during first- and second-phase secretion between subjects with NGT and IGT and were significantly increased in type 2 diabetes. Obese youth with IGT have a significant defect in first-phase insulin secretion, while a defect in second-phase secretion and proinsulin processing is specific for type 2 diabetes in this age-group.