We examined the metabolic characteristics that attend the development of type 2 diabetes (T2DM) in 441 impaired glucose tolerance (IGT) subjects who participated in the ACT NOW Study and had complete end-of-study metabolic measurements. Subjects were randomized to receive pioglitazone (PGZ; 45 mg/day) or placebo and were observed for a median of 2.4 years. Indices of insulin sensitivity (Matsuda index [MI]), insulin secretion (IS)/insulin resistance (IR; ΔI0-120/ΔG0-120, ΔIS rate [ISR]0-120/ΔG0-120), and β-cell function (ΔI/ΔG × MI and ΔISR/ΔG × MI) were calculated from plasma glucose, insulin, and C-peptide concentrations during oral glucose tolerance tests at baseline and study end. Diabetes developed in 45 placebo-treated vs. 15 PGZ-treated subjects (odds ratio [OR] 0.28 [95% CI 0.15-0.49]; P < 0.0001); 48% of PGZ-treated subjects reverted to normal glucose tolerance (NGT) versus 28% of placebo-treated subjects (P < 0.005). Higher final glucose tolerance status (NGT > IGT > T2DM) was associated with improvements in insulin sensitivity (OR 0.61 [95% CI 0.54-0.80]), IS (OR 0.61 [95% CI 0.50-0.75]), and β-cell function (ln IS/IR index and ln ISR/IR index) (OR 0.26 [95% CI 0.19-0.37]; all P < 0.0001). Of the factors measured, improved β-cell function was most closely associated with final glucose tolerance status.