Aging is a risk factor for impaired glucose tolerance and diabetes. Of the reported 25.8 million Americans estimated to have diabetes, 26.9% are over the age of 65. In certain ethnic groups, the proportion is even higher; almost 1 in 3 older Hispanics and African Americans and 3 out of 4 Pima Indian elders have diabetes. As per the NHANES III (Third National Health and Nutrition Examination) survey, the percentage of physician-diagnosed diabetes increased from 3.9% in middle-aged adults (40–49 years) to 13.2% in elderly adults (≥75 years). The higher incidence of diabetes is especially alarming considering that diabetes in itself increases the risk for multiple other age-related diseases such as cancer, stroke, cardiovascular diseases, Parkinson’s disease, and Alzheimer’s disease (AD). In this review, we summarize the current evidence on how aging affects pancreatic β cell function, β cell mass, insulin secretion and insulin sensitivity. We also review the effects of aging on the relationship between insulin sensitivity and insulin secretion. Understanding the mechanisms that lead to impaired glucose homeostasis and T2D in the elderly will lead to development of novel treatments that will prevent or delay diabetes, substantially improve quality of life and ultimately increase overall life span.