Aims/hypothesis The Zucker fatty (ZF) rat subjected to 60% pancreatectomy (Px) develops moderate diabetes by 3 weeks. We determined whether a progressive fall in beta cell mass and/or beta cell dysfunction contribute to beta cell failure in this type 2 diabetes model. Methods Partial (60%) or sham Px was performed in ZF and Zucker lean (ZL) rats. At 3 weeks post-surgery, beta cell mass and proliferation, proinsulin biosynthesis, pancreatic insulin content, insulin secretion, and islet glucose and lipid metabolism were measured. Results ZL-Px rats maintained normal glycaemia and glucose-stimulated insulin secretion (GSIS) despite incomplete recovery of beta cell mass possibly due to compensatory enhanced islet glucose metabolism and lipolysis. ZF-Px rats developed moderate hyperglycaemia (14 mmol/l), hypertriacylglycerolaemia and relative hypoinsulinaemia. Despite beta cell mass recovery and normal arginine-induced insulin secretion, GSIS and pancreatic insulin content were profoundly lowered in ZF-Px rats. Proinsulin biosynthesis was not reduced. Compensatory increases in islet glucose metabolism above those observed in ZF-Sham rats were not seen in ZF-Px rats. Triacylglycerol content was not increased in ZF-Px islets, possibly due to lipodetoxification by enhanced lipolysis and fatty acid oxidation. Fatty acid accumulation into monoacylglycerol and diacylglycerol was increased in ZF-Px islets together with a 4.5-fold elevation in stearoyl-CoA desaturase mRNA expression. Conclusions/interpretation Falling beta cell mass, reduced proinsulin biosynthesis and islet steatosis are not implicated in early beta cell failure and glucolipotoxicity in ZF-Px rats. Rather, severe beta cell dysfunction with a specific reduction in GSIS and marked depletion of beta cell insulin stores with altered lipid partitioning underlie beta cell failure in this animal model of type 2 diabetes.