The two major metabolic perturbations resulting in hyperglycaemia in type 2 diabetes are insulin resistance and insulin deficiency. Insulin resistance occurs in peripheral organs (muscle and fat), leading to decreased glucose uptake and utilisation, and in liver, leading to increased hepatic glucose production. Thiazolidinediones, pharmacological ligands for PPAR gamma, can modulate the expression of genes influencing carbohydrate and lipid metabolism. Pioglitazone, a recently introduced thiazolidinedione, improves glycaemic control and lipid profiles in people with type 2 diabetes. Some of the possible mechanisms of improving glycaemic control include (a) increase in GLUT-1 and GLUT-4, (b) enhancement of insulin signalling, (c) decrease in tumour necrosis factor-alpha action, (d) reduction in plasma free fatty acid and (e) decrease in PEPCK. Together these can increase glucose uptake and utilisation in the peripheral organs and decrease gluconeogenesis in the liver. Possible mechanisms resulting in more desirable lipid profiles include an increase in phosphodiesterase-3B resulting in reduced intra-cellular lipolysis in adipocytes and an increase in lipoprotein lipase resulting in enhanced clearance of triglyceride-rich lipoproteins(TRLs). Pioglitazone, used as monotherapy or in combination with sulphonylurea, biguanide or insulin, improves glycaemic control, lowers serum triglycerides and raises high density lipoprotein (HDL)-cholesterol. It enhances hepatic and peripheral insulin sensitivity. In clinical trials, there has been no evidence of hepatotoxicity or increased incidence of elevated serum ALT in subjects taking pioglitazone compared with placebo.