The pathogenesis of type 2 diabetes involves both insulin resistance and defects in insulin secretion. Although obesity and physical inactivity have precipitated the epidemic of type 2 diabetes, the metabolic abnormalities associated with a sedentary lifestyle are better predictors of type 2 diabetes and cardiovascular disease than obesity alone. Some of these metabolic abnormalities, which are either causes or consequences of insulin resistance, have been called the metabolic syndrome. Fat accumulation in the liver due to non-alcoholic causes (non-alcoholic fatty liver disease) has also been shown to be an obesity-independent predictor of type 2 diabetes in multiple prospective studies. Since the liver is a key site of action of insulin, it seems reasonable to postulate that subjects who deposit excessive amounts of fat in the liver are those who also are at risk of developing the metabolic syndrome. Mechanistic studies support this hypothesis. Once fatty, the liver is resistant to the actions of insulin to inhibit both production of glucose and very-low-density lipoprotein, which results in mild hyperglycemia, compensatory hyperinsulinemia and hypertriglyceridemia. The latter leads to lowering of high-density lipoprotein cholesterol and formation of atherogenic small dense low-density lipoprotein particles. These data suggest that the metabolic syndrome and non-alcoholic fatty liver disease are essentially two definitions of the same problem. In subjects who cannot sustain hyperinsulinemia to maintain glucose concentrations in the nondiabetic range, overt hyperglycemia, i.e. type 2 diabetes, develops.