The aetiology of non-insulin-dependent diabetes mellitus (NIDDM) is not known. The concordance of NIDDM in identical twins and differences in the prevalence rate of NIDDM between different racial groups suggest a genetic cause. Hyperglycaemia in established diabetes is caused by a combination of hepatic insulin resistance, impaired peripheral (muscle and fat) glucose uptake and a defect in glucose-mediated insulin secretion. However, it is not known if these defects are all inherited or if one can cause the others. This uncertainty is due to the fact that hyperglycaemia per se can cause defects in insulin action and insulin secretion that resemble those found in NIDDM. Furthermore the elevated free fatty acid (FFA) levels found when NIDDM is associated with obesity are known to cause both peripheral and hepatic insulin resistance. Recently we have demonstrated the mechanism by which elevated FFA levels can cause hepatic insulin resistance. However, we also have evidence that the converse holds in that genetically engineered hepatic insulin resistance in a transgenic rat model leads to obesity. Thus an understanding of the pathogenesis of NIDDM is complicated by the fact that hyperglycaemia and obesity can be both causes and consequences of insulin resistance. To overcome these difficulties, studies in young euglycaemic diabetes-prone subjects have been conducted. Results suggest that there may be different causes for NIDDM in different racial groups.