Thiazolidinediones (TZDs) and metformin decreased the incidence of diabetes in subjects at risk for developing diabetes and improved peripheral or hepatic insulin sensitivity, respectively. Whether they also directly improved beta-cell function is not clear. In vitro studies showed improved beta-cell function in response to TZDs and metformin; however, the effects of TZDs or metformin on beta-cell function in humans are still uncertain. We hypothesized that both TZDs and metformin directly affect beta-cell function. We evaluated beta-cell function and insulin sensitivity (S(I)) in subjects with impaired glucose tolerance or a history of gestational diabetes using oral and intravenous glucose tolerance tests in addition to the glucose-potentiated arginine stimulation test. In contrast to metformin, pioglitazone improved S(I), glucose tolerance, and insulin-independent glucose disposal [glucose effectiveness (S(G))]. Neither pioglitazone nor metformin significantly improved beta-cell compensation for insulin resistance [disposition index (DI)], but the change in DI significantly correlated with baseline S(I). Insulin secretion in response to arginine at maximally potentiating glucose levels (AIR(max)) tended to increase after metformin and to decrease after pioglitazone; however, when adjusted for S(I), the changes were not significant. Our results demonstrate that, in nondiabetic subjects at risk for diabetes, pioglitazone, but not metformin, significantly improved glucose tolerance by improving S(I) and S(G). We did not find any evidence that either pioglitazone or metformin improved beta-cell function. Improved beta-cell compensation was observed primarily in the subgroup of subjects that had the lowest S(I) at baseline.