Islet amyloid polypeptide (IAPP) forms cytotoxic oligomers and amyloid fibrils in islets in type 2 diabetes (T2DM). The causal factors for amyloid formation are largely unknown. Mechanisms of molecular folding and assembly of human IAPP (hIAPP) into β-sheets, oligomers and fibrils have been assessed by detailed biophysical studies of hIAPP and non-fibrillogenic, rodent IAPP (rIAPP); cytotoxicity is associated with the early phases (oligomers/multimers) of fibrillogenesis. Interaction with synthetic membranes promotes β-sheet assembly possibly via a transient α-helical molecular conformation. Cellular hIAPP cytotoxicity can be activated from intracellular or extracellular sites. In transgenic rodents overexpressing hIAPP, intracellular pro-apoptotic signals can be generated at different points in β-cell protein synthesis. Increased cellular trafficking of proIAPP, failure of the unfolded protein response (UPR) or excess trafficking of misfolded peptide via the degradation pathways can induce apoptosis; these data indicate that defects in intracellular handling of hIAPP can induce cytotoxicity. However, there is no evidence for IAPP overexpression in T2DM. Extracellular amyloidosis is directly related to the degree of β-cell apoptosis in islets in T2DM. IAPP fragments, fibrils and multimers interact with membranes causing disruption in vivo and in vitro. These findings support a role for extracellular IAPP in β-sheet conformation in cytotoxicity. Inhibitors of fibrillogenesis are useful tools to determine the aberrant mechanisms that result in hIAPP molecular refolding and islet amyloidosis. However, currently, their role as therapeutic agents remains uncertain.