Type 2 diabetes (T2DM) is characterized by insulin resistance, defective insulin secretion, loss of beta-cell mass with increased beta-cell apoptosis and islet amyloid. The islet amyloid is derived from islet amyloid polypeptide (IAPP, amylin), a protein coexpressed and cosecreted with insulin by pancreatic beta-cells. In common with other amyloidogenic proteins, IAPP has the propensity to form membrane permeant toxic oligomers. Accumulating evidence suggests that these toxic oligomers, rather than the extracellular amyloid form of these proteins, are responsible for loss of neurons in neurodegenerative diseases. In this review we discuss emerging evidence to suggest that formation of intracellular IAPP oligomers may contribute to beta-cell loss in T2DM. The accumulated evidence permits the amyloid hypothesis originally developed for neurodegenerative diseases to be reformulated as the toxic oligomer hypothesis. However, as in neurodegenerative diseases, it remains unclear exactly why amyloidogenic proteins form oligomers in vivo, what their exact structure is, and to what extent these oligomers play a primary or secondary role in the cytotoxicity in what are now often called unfolded protein diseases.