Pharmacokinetic (PK) pharmacodynamic (PD) modeling was applied to understand and quantitate the interplay between tesaglitazar (a peroxisome proliferator-activated receptor alpha/gamma agonist) exposure, fasting plasma glucose (FPG), hemoglobin (Hb), and glycosylated hemoglobin (HbA1c) in type 2 diabetic patients. Data originated from a 12-week dose-ranging study with tesaglitazar. The primary objective was to develop a mechanism-based PD model for the FPG-HbA1c relationship. The secondary objective was to investigate possible mechanisms for the tesaglitazar effect on Hb. Following initiation of tesaglitazar therapy, time to new FPG steady state was approximately 9 weeks, and tesaglitazar potency in females was twice that in males. The model included aging of red blood cells (RBCs) using a transit compartment approach. The RBC life span was estimated to 135 days. The transformation from RBC to HbA1c was modeled as an FPG-dependent process. The model indicated that the tesaglitazar effect on Hb was caused by hemodilution of RBCs.