Type 2 diabetes is characterized by peripheral insulin resistance and insufficient insulin release from pancreatic islet β cells. However, the role and sequence of β cell dysfunction and mass loss for reduced insulin levels in type 2 diabetes pathogenesis are unclear. Here, we exploit freshly explanted pancreas specimens from metabolically phenotyped surgical patients using an in situ tissue slice technology. This approach allows assessment of β cell volume and function within pancreas samples of metabolically stratified individuals. We show that, in tissue of pre-diabetic, impaired glucose-tolerant subjects, β cell volume is unchanged, but function significantly deteriorates, exhibiting increased basal release and loss of first-phase insulin secretion. In individuals with type 2 diabetes, function within the sustained β cell volume further declines. These results indicate that dysfunction of persisting β cells is a key factor in the early development and progression of type 2 diabetes, representing a major target for diabetes prevention and therapy.