Glucocorticoids (GCs) are frequently prescribed anti-inflammatory and immunosuppressive drugs. In addition to their beneficial effects on disease activity, GCs have an extensive side effect profile, including adverse effects on metabolism resulting in the development of glucose intolerance and overt diabetes. Recent developments have led to renewed interest in the mechanisms underlying these diabetogenic effects of GCs. First, dissociated glucocorticoid receptor (GR) agonists were developed which are designed to segregate the anti-inflammatory and metabolic actions of GCs, potentially rendering compounds with a higher therapeutic index. Second, at present, 11-beta hydroxysteroid dehydrogenase type-1 inhibitors are under development. These compounds may lower tissue GC concentrations by inhibiting cortisone to cortisol conversion and are being evaluated in clinical trials as a novel treatment modality for the metabolic syndrome. Here, we provide an up-to-date overview of the current insights regarding the mechanisms responsible for the adverse metabolic effects of GCs that may lead to steroid diabetes. Particularly, we will focus on GC-related induction of insulin resistance and pancreatic islet-cell dysfunction. Finally, we will discuss how increased knowledge concerning the pathophysiology of steroid diabetes may result in improved treatment strategies.