OBJECTIVE This cross-sectional clinical study compared the pathophysiology of type 2 diabetes in Japanese and Caucasians and investigated the role of demographic, genetic, and lifestyle-related risk factors for insulin resistance and β-cell response. RESEARCH DESIGN AND METHODS A total of 120 Japanese and 150 Caucasians were enrolled to obtain comparable distributions of high/low BMI values across glucose tolerance states (normal glucose tolerance, impaired glucose tolerance, and type 2 diabetes), which were assessed by oral glucose tolerance tests. BMI in the two cohorts was distributed around the two regional cutoff values for obesity. RESULTS Insulin sensitivity was higher in Japanese compared with Caucasians, as indicated by the homeostatic model assessment of insulin resistance and Matsuda indices, whereas β-cell response was higher in Caucasians, as measured by homeostatic model assessment of β-cell function, the insulinogenic indices, and insulin secretion ratios. Disposition indices were similar for Japanese and Caucasians at all glucose tolerance states, indicating similar β-cell response relative to the degree of insulin resistance. The main determinants for differences in metabolic indices were measures of body composition, such as BMI and distribution of adipose tissue. Differences in β-cell response between Japanese and Caucasians were not statistically significant following adjustment by differences in BMI. CONCLUSIONS Our study showed similar disposition indices in Japanese and Caucasians and that the major part of the differences in insulin sensitivity and β-cell response between Japanese and Caucasians can be explained by differences in body composition.