OBJECTIVE Over half of newly diagnosed obese African Americans with diabetic ketoacidosis (DKA) discontinue insulin therapy and go through a period of near-normoglycemia remission. This subtype of diabetes is known as ketosis-prone type 2 diabetes (KPDM). RESEARCH DESIGN AND METHODS To investigate the role of lipotoxicity on beta-cell function, eight obese African Americans with KPDM, eight obese subjects with type 2 diabetes with severe hyperglycemia without ketosis (ketosis-resistant type 2 diabetes), and nine nondiabetic obese control subjects underwent intravenous infusion of 20% intralipid at 40 ml/h for 48 h. beta-Cell function was assessed by changes in insulin and C-peptide concentration during infusions and by changes in acute insulin response to arginine stimulation (AIR(arg)) before and after lipid infusion. RESULTS The mean time to discontinue insulin therapy was 11.0 +/- 8.0 weeks in KPDM and 9.6 +/- 2.2 weeks in ketosis-resistant type 2 diabetes (P = NS). At remission, KPDM and ketosis-resistant type 2 diabetes had similar glucose (94 +/- 14 vs. 109 +/- 20 mg/dl), A1C (5.7 +/- 0.4 vs. 6.3 +/- 1.1%), and baseline AIR(arg) response (34.8 +/- 30 vs. 64 +/- 69 microU/ml). P = NS despite a fourfold increase in free fatty acid (FFA) levels (0.4 +/- 0.3 to 1.8 +/- 1.1 mmol/l, P < 0.01) during the 48-h intralipid infusion; the response to AIR(arg) stimulation, as well as changes in insulin and C-peptide levels, were similar among obese patients with KPDM, patients with ketosis-resistant type 2 diabetes, and nondiabetic control subjects. CONCLUSIONS Near-normoglycemia remission in obese African American patients with KPDM and ketosis-resistant type 2 diabetes is associated with a remarkable recovery in basal and stimulated insulin secretion. A high FFA level by intralipid infusion for 48 h was not associated with beta-cell decompensation (lipotoxicity) in KPDM patients.