OBJECTIVE: The relative roles of insulin resistance and beta-cell dysfunction in the pathogenesis of impaired glucose tolerance (IGT) and type 2 diabetes are debated. First-degree relatives of individuals with type 2 diabetes are at increased risk of developing hyperglycemia. RESEARCH DESIGN AND METHODS: We evaluated the evolution of insulin sensitivity, beta-cell function, glucose effectiveness, and glucose tolerance over 7 years in 33 nondiabetic, first-degree relatives of type 2 diabetic individuals using frequently sampled tolbutamide-modified intravenous and oral glucose tolerance tests. RESULTS: Subjects gained weight, and their waist circumference increased (P < 0.05). Insulin sensitivity, the acute insulin response to glucose, and glucose effectiveness did not change significantly. However, when we accounted for the modulating effect of insulin sensitivity on insulin release, beta-cell function determined as the disposition index decreased by 22% (P < 0.05). This decrease was associated with declines in intravenous and oral glucose tolerance (P < 0.05 and P < 0.001, respectively). Of the subjects with normal glucose tolerance at the first assessment, we compared those who progressed to IGT with those who did not. The disposition index was 50% lower in the progressors than in the nonprogressors at follow-up (P < 0.05). CONCLUSIONS: The decline in glucose tolerance over time in first-degree relatives of type 2 diabetic individuals is strongly related to the loss of beta-cell function. Thus, early interventions to slow the decline in beta-cell function should be considered in high-risk individuals.