Type 2 diabetes results from impaired insulin action and beta-cell dysfunction. There are at least two components to beta-cell dysfunction: impaired insulin secretion and decreased beta-cell mass. To analyze how these two variables contribute to the progressive deterioration of metabolic control seen in diabetes, we asked whether mice with impaired beta-cell growth due to Irs2 ablation would be able to mount a compensatory response in the background of insulin resistance caused by Insr haploinsufficiency. As previously reported, approximately 70% of mice with combined Insr and Irs2 mutations developed diabetes as a consequence of markedly decreased beta-cell mass. In the initial phases of the disease, we observed a robust increase in circulating insulin levels, even as beta-cell mass gradually declined, indicating that replication-defective beta-cells compensate for insulin resistance by increasing insulin secretion. These data provide further evidence for a heterogeneous beta-cell response to insulin resistance, in which compensation can be temporarily achieved by increasing function when mass is limited. The eventual failure of compensatory insulin secretion suggests that a comprehensive treatment of beta-cell dysfunction in type 2 diabetes should positively affect both aspects of beta-cell physiology.