To determine whether the genetic predisposition towards Type 2 diabetes was associated with a defect in either islet‐cell function or insulin action, 12 non‐diabetic offspring each of whose parents both had Type 2 diabetes were studied, together with 12 control subjects matched for age, sex, and weight. Fasting plasma glucose was higher in the offspring (5.5 ± 0.1 mmol I⁻¹ (mean ± SE)) than in the matched controls (5.1 ± 0.1 mmol I⁻¹) (p < 0.05). Using an IVGTT insulin sensitivity was not significantly lower in the offspring compared with their controls (3.1 ± 0.5 vs 3.8 ± 1.0 min⁻¹ ***mU⁻¹ I 10⁻⁴). There was no significant difference in any of the measures of insulin secretion (first‐ and second‐phase response to IV glucose, slope of glucose potentiation, and maximal glucose regulated insulin secretory capacity). Glucagon secretion measured before and after a stimulus of IV arginine at varying plasma glucose concentrations was virtually identical in the offspring and their controls. Among a total of 28 non‐diabetic subjects of differing body‐weights there was a significant inverse relationship between insulin sensitivity and insulin secretion. When adjusted for their generally lower insulin sensitivity, maximal insulin secretory capacity was reduced in the offspring (p = 0.038, one‐tailed t‐test). The results suggest that the genetic predisposition to Type 2 diabetes is not associated in young adults with any major pre‐morbid impairment in insulin secretion or insulin action but the relationship between the two may be abnormal. Islet A‐cell function appears to be normal.