Although insulin resistance and beta-cell dysfunction are the hallmarks of type 2 diabetes (T2DM), whether insulin resistance can precipitate beta-cell dysfunction without a preexisting genetic beta-cell defect is unclear. We have examined the consequences of insulin resistance on the beta-cell in the MKR mouse, which expresses the M&barbelow;CK-KR-IGF-IR transgene, a dominant-negative insulin-like growth factor-1 receptor, in muscle. In this model, dominant-negative expression led to systemic insulin resistance, hyperglycemia and defects in insulin secretion. Despite the demand on insulin secretion, MKR mice displayed increased pancreatic insulin content and beta-cell mass, the latter mediated through beta-cell hyperplasia and hypertrophy. Enhancement of insulin sensitivity improved insulin secretion and beta-cell morphology. Our studies consequently demonstrate that insulin resistance can precipitate beta-cell dysfunction and compensatory changes in the beta-cell. However, this compensation is insufficient to prevent diabetes, demonstrating a mechanism through which insulin resistance can undermine beta-cell compensation, and lead to hyperglycemia.