Obesity is associated with chronic inflammation that may contribute to T2D among youth. We examined the association between inflammatory biomarkers and insulin sensitivity and β-cell function and response to lifestyle intervention among Latino youth with obesity. Latino youth (n = 64) were randomized to six months of lifestyle intervention (INT, n = 40) or usual care (UC, n = 24). INT included nutrition education and physical activity. UC involved meeting with a pediatric endocrinologist and registered dietitian to discuss healthy lifestyles. At baseline, multiple linear regression assessed fasting serum interleukin-6 (IL-6), tumor necrosis factor-alpha (TNF-α), monocyte chemoattractant protein-1 (MCP-1), high-molecular weight adiponectin (HMW Adpn), IL-10, IL-1 receptor antagonist (IL-1ra) as predictors of insulin sensitivity (whole-body insulin sensitivity index, WBISI) and β-cell function (oral disposition index, oDI). Changes in outcomes between groups were assessed using covariance pattern models. At baseline, MCP-1 (β ± SE, −0.12 ± 0.05, p = 0.027) and IL-1ra (−0.03 ± 0.01, p = 0.005) were negatively associated with WBISI. Treatment effects were not observed for inflammatory markers. WBISI was significantly increased among both INT (from 1.8 ± 0.2 to 2.6 ± 0.4, p = 0.005) and UC (from 1.6 ± 0.2 to 2.8 ± 0.5, p = 0.002) with no significant differences between the groups. Obesity-related inflammatory mediators were associated with T2D risk factors but were unaffected by lifestyle intervention among Latino youth.