We explored the mechanisms by which a 4-month, placebo-controlled pioglitazone treatment (45 mg/day) improves glycemic control in type II diabetic patients (T2D, n=27) using physiological testing (6-h mixed meal) and a triple tracer technique ([6,6-(2)H(2)]glucose infusion, (2)H(2)O and [6-(3)H]glucose ingestion) to measure endogenous glucose production (EGP), gluconeogenesis (GNG), insulin-mediated glucose clearance and beta-cell glucose sensitivity (by c-peptide modeling). Compared to sex/age/weight-matched non-diabetic controls, T2D patients showed inappropriately (for prevailing insulinemia) raised glucose production (1.05[0.53] vs 0.71[0.36]mmol min(-1) kg(ffm)(-1) pM, P=0.03) because of enhanced GNG (73.1+/-2.4 vs 59.5+/-3.6%, P<0.01) persisting throughout the meal, reduced insulin-mediated glucose clearance (6[5] vs 12[13]ml min(-1) kg(ffm)(-1) nM(-1), P<0.005), and impaired beta-cell glucose-sensitivity (27[38] vs 71[37]pmol min(-1) m(-2) mM(-1), P=0.002). Compared to placebo, pioglitazone improved glucose overproduction (P=0.0001), GNG and glucose underutilization (P=0.05) despite lower insulinemia. GNG improvement was quantitatively related to raised adiponectin. beta-cell glucose sensitivity was unchanged. In mild-to-moderate T2D, pioglitazone monotherapy decreased fasting and post-prandial glycemia, principally via inhibition of gluconeogenesis, improved hepatic and peripheral insulin resistance.