Impaired glucose tolerance (IGT) is an insulin-resistant state and a risk factor for Type 2 diabetes. The relative roles of insulin resistance and insulin deficiency in IGT have been disputed. In 40 IGT subjects and 63 sex-, age-, and weight-matched controls with normal glucose tolerance (NGT), we measured (i) indices of insulin sensitivity of fasting glucose production (by tracer glucose) and glucose disposal (M value on a 240 pmol·min–1·m–2 insulin clamp) and (ii) indices of beta-cell function (glucose sensitivity, rate sensitivity, and potentiation) derived from model analysis (Am J Physiol 283:E1159–E1166, 2002) of the insulin secretory response (by C-peptide deconvolution) to oral glucose. In comparison with NGT, IGT were modestly insulin resistant (M=29±2 vs 35±2 µmol·min−1·kgFFM −1, p=0.01); insulin sensitivity of glucose production also was reduced, in approximate proportion to M. Despite higher baseline insulin secretion rates, IGT was characterized by a 50% reduction in glucose sensitivity [53 (36) vs 102 (123) pmol·min−1·m–2·mM–1, median (interquartile range), p=0.001] and impaired potentiation [1.6 (0.8) vs 2.0 (1.5) units, p<0.04] of insulin release, whereas rate sensitivity [1.15 (1.15) vs 1.38 (1.28) nmol·m–2·mM–1] was not significantly reduced. Glucose sensitivity made the single largest contribution (~50%) to the observed variability of glucose tolerance. In IGT the defect in glucose sensitivity of insulin release quantitatively predominates over insulin resistance in the genesis of the reduced tolerance to oral glucose.