Type 2 diabetes mellitus (T2DM) in children and adolescents is an important Public Health problem against the backdrop of the epidemic of childhood obesity. The clinical presentation of T2DM in youth is heterogeneous from minimal symptomatology to diabetic ketoacidosis. The increasing rates of youth T2DM have paralleled the escalating rates of obesity, which is the major risk factor impacting insulin sensitivity. Additional risk factors include minority race, family history of diabetes mellitus, maternal diabetes during pregnancy, pubertal age group and conditions associated with insulin resistance (IR) - such as polycystic ovary syndrome (PCOS). The pathophysiology of T2DM has been studied extensively in adults, and it is widely accepted that IR together with beta-cell failure are necessary for the development of clinical diabetes mellitus in adulthood. However, pathophysiologic studies in youth are limited and in some cases conflicting. Similar to adults, IR is a prerequisite, but beta-cell failure is necessary for progression from normal glucose tolerance to prediabetes and frank diabetes in youth. Even though rates of T2DM in youth are increasing, the overall prevalence remains low if compared with type 1 diabetes mellitus (T1DM). However, as youth with T1DM are becoming obese, the clinical distinction between T2DM and obese T1DM has become difficult, because of the overlapping clinical picture with evidence of islet cell autoimmunity in a significant proportion of clinically diagnosed youth with T2DM. The latter are most likely obese children with autoimmune T1DM who carry a misdiagnosis of T2DM. Further research is needed to probe the pathophysiological, immunological, and metabolic differences between these two groups in the hopes of assigning appropriate therapeutic regimens. These challenges combined with the evolving picture of youth T2DM and its future complications provide unending opportunities for acquisition of new knowledge in the field of childhood diabetes.