Type 2 diabetes risk and its relationship to free fatty acid (FFA) exposure and visceral fat by prediabetes status in minority adolescents have yet to be explored. Therefore, the objective of this study was to examine the association of circulating FFA under varying conditions with prediabetes in Latino adolescents and to determine the relative relationships of FFA and visceral adiposity to insulin sensitivity, secretion, and β-cell function. Overweight or obese, but otherwise healthy Latino adolescent males and females (n = 164, 14.2 ± 2.5 years), were recruited for assessment of prediabetes, abdominal fat, and FFA levels taken at a fasting state (FFAF), during an OGTT (FFAOGTT), and overnight (FFANOCTURNAL). Prediabetic adolescents had a higher FFAF than those with normal glucose tolerance when controlling for age, sex, pubertal status, total percent body fat, and visceral fat. FFAOGTT and FFANOCTURNAL did not differ between participants with prediabetes and those with normal glucose tolerance after adjusting for covariates. Visceral fat was independently related to insulin sensitivity and secretion in pubertal adolescents; however, in post-pubertal adolescents, FFAF and visceral fat were both independent and negatively related to β-cell function. These results support a plausible progression of the lipotoxicity theory of diabetes development during the pubertal transition.