We tested the hypothesis that glucose intolerance develops in genetically prone subjects when exogenous insulin resistance is induced by dexamethasone (dex) and investigated whether the steroid-induced glucose intolerance is due to impairment of beta-cell function alone and/or insulin resistance. Oral glucose tolerance (OGTT) and intravenous glucose tolerance tests with minimal model analysis were performed before and following 5 days of dex treatment (4 mg/day) in 20 relatives of non-insulin-dependent diabetic (NIDDM) patients and in 20 matched control subjects (age: 29.6 ± 1.7 vs 29.6 ± 1.6 years, BMI: 25.1 ± 1.0 vs 25.1 ± 0.9 kg/m²). Before dex, glucose tolerance was similar in both groups (2-h plasma glucose concentration (PG): 5.5 ± 0.2 [range: 3.2–7.0] vs 5.5 ± 0.2 [3.7–7.4] mmol/l). Although insulin sensitivity (Si) was significantly lower in the relatives before dex, insulin sensitivity was reduced to a similar level during dex in both the relatives and control subjects (0.30 ± 0.04 vs 0.34 ± 0.04 10^–4 min^–1 per pmol/l, NS). During dex, the variation in the OGTT 2-h PG was greater in the relatives (8.5 ± 0.7 [3.9–17.0] vs 7.5 ± 0.3 [5.7–9.8] mmol/l, F-test p < 0.05) which, by inspection of the data, was caused by seven relatives with a higher PG than the maximal value seen in the control subjects (9.8 mmol/l). These “hyperglycaemic” relatives had diminished first phase insulin secretion (Ø1) both before and during dex compared with the “normal” relatives and the control subjects (pre-dex Ø1: 12.6 ± 3.6 vs 26.4 ± 4.2 and 24.6 ± 3.6 (p < 0.05), post-dex Ø1: 22.2 ± 6.6 vs 48.0 ± 7.2 and 46.2 ± 6.6 respectively (p < 0.05) pmol · l^–1· min^–1 per mg/dl). However, Si was similar in “hyperglycaemic” and “normal” relatives before dex (0.65 ± 0.10 vs 0.54 ± 0.10 10−4 · min^–1 per pmol/l) and suppressed similarly during dex (0.30 ± 0.07 vs 0.30 ± 0.06 10−4 · min^–1 per pmol/l). Multiple regression analysis confirmed the unique importance of low pre-dex beta-cell function to subsequent development of high 2-h post-dex OGTT plasma glucose levels (R ² = 0.56). In conclusion, exogenous induced insulin resistance by dex will induce impaired or diabetic glucose tolerance in those genetic relatives of NIDDM patients who have impaired beta-cell function (retrospectively) prior to dex exposure. These subjects are therefore unable to enhance their beta-cell response in order to match the dex-induced insulin resistant state. [Diabetologia (1997) 40: 1439–1448]