Overweight/obesity continues to increase in children and adolescents, and annual obesity-related hospital costs in 6-17 yr olds have reached 127 million dollars per year. Overweight children and adolescents are now being diagnosed with impaired glucose tolerance and type 2 diabetes, and they show early signs of the insulin resistance syndrome and cardiovascular risk. Several risk factors have been identified as contributors to the development of type 2 diabetes and cardiovascular risk in youth. These factors include increased body fat and abdominal fat, insulin resistance, ethnicity (with greater risk in African-American, Hispanic, and Native American children), and onset of puberty. There is no clear explanation of how these factors increase risk, but they appear to act in an additive fashion. We hypothesize that the constellation of these risk factors may be especially problematic during the critical period of adolescent development, especially in individuals who may have compromised beta-cell function and an inability to compensate for severe insulin resistance. Therefore, the purpose of this paper is to review the pathophysiology of type 2 diabetes and cardiovascular risk in obese children and adolescents.