People with prediabetes are at high risk of developing diabetes. The objective of this study was to determine the pathogenesis of fasting and postprandial hyperglycemia in prediabetes. Glucose production, gluconeogenesis, glycogenolysis, and glucose disappearance were measured before and during a hyperinsulinemic clamp using [6,6-(2)H2]glucose and the deuterated water method corrected for transaldolase exchange. The study was conducted at the Mayo Clinic Clinical Research Unit. Subjects with impaired fasting glucose (IFG)/normal glucose tolerance (NGT) (n = 14), IFG/impaired glucose tolerance (IGT) (n = 18), and normal fasting glucose (NFG)/NGT (n = 16) were studied. A hyperinsulinemic clamp was used. Glucose production, glucose disappearance, gluconeogenesis, and glycogenolysis were measured. Fasting glucose production was higher (P < .0001) in subjects with IFG/NGT than in those with NFG/NGT because of increased rates of gluconeogenesis (P = .003). On the other hand, insulin-induced suppression of glucose production, gluconeogenesis, glycogenolysis, and stimulation of glucose disappearance all were normal. Although fasting glucose production also was increased (P = .0002) in subjects with IFG/IGT, insulin-induced suppression of glucose production, gluconeogenesis, and glycogenolysis and stimulation of glucose disappearance were impaired (P = .005). Fasting hyperglycemia is due to excessive glucose production in people with either IFG/NGT or IFG/IGT. Both insulin action and postprandial glucose concentrations are normal in IFG/NGT but abnormal in IFG/IGT. This finding suggests that hepatic and extrahepatic insulin resistance causes or exacerbates postprandial glucose intolerance in IFG/IGT. Elevated gluconeogenesis in the fasting state in IFG/NGT and impaired insulin-induced suppression of both gluconeogenesis and glycogenolysis in IFG/IGT suggest that alteration in the regulation of these pathways occurs early in the evolution of type 2 diabetes.