The objective was to compare weight loss and change in body composition in obese subjects with and without type 2 diabetes mellitus during a very-low-calorie diet (VLCD) program. Seventy weight-matched subjects with diabetes or normal fasting glucose (controls) participated in a 24-week VLCD study. Primary end points were changes in anthropometry, body composition, and fasting plasma insulin and β-hydroxybutyrate concentrations. Fifty-one subjects (24 with diabetes) completed the study. No difference in weight loss between the 2 groups at 24 weeks was found by intention-to-treat analysis. Both groups completing the study per protocol had near-identical weight change during the program, with similar weight loss at 24 weeks (diabetes: 8.5 ± 1.3 kg vs control: 9.4 ± 1.2 kg, P = .64). Change in fat mass index correlated with change in body mass index (BMI) in both groups (diabetes: r = 0.878, control: r = 0.920, both P < .001); but change in fat mass index per unit change in BMI was less in the diabetic group compared with controls (0.574 vs 0.905 decrease, P = .003), which persisted after adjusting for age, sex, and baseline BMI (P = .008). Insulin concentrations remained higher and peak β-hydroxybutyrate concentrations were lower in the diabetic compared with the control group. While following a 24-week VLCD program, obese subjects with and without diabetes achieved comparable weight loss; but the decrease in adiposity per unit weight loss was attenuated in diabetic subjects. Hyperinsulinemia may have inhibited lipolysis in the diabetic group; however, further investigation into other factors is needed.