OBJECTIVE This study determined whether the decrease in pancreatic triacylglycerol during weight loss in type 2 diabetes mellitus (T2DM) is simply reflective of whole-body fat or specific to diabetes and associated with the simultaneous recovery of insulin secretory function. RESEARCH DESIGN AND METHODS Individuals listed for gastric bypass surgery who had T2DM or normal glucose tolerance (NGT) matched for age, weight, and sex were studied before and 8 weeks after surgery. Pancreas and liver triacylglycerol were quantified using in-phase, out-of-phase MRI. Also measured were the first-phase insulin response to a stepped intravenous glucose infusion, hepatic insulin sensitivity, and glycemic and incretin responses to a semisolid test meal. RESULTS Weight loss after surgery was similar (NGT: 12.8 ± 0.8% and T2DM: 13.6 ± 0.7%) as was the change in fat mass (56.7 ± 3.3 to 45.4 ± 2.3 vs. 56.6 ± 2.4 to 43.0 ± 2.4 kg). Pancreatic triacylglycerol did not change in NGT (5.1 ± 0.2 to 5.5 ± 0.4%) but decreased in the group with T2DM (6.6 ± 0.5 to 5.4 ± 0.4%; P = 0.007). First-phase insulin response to a stepped intravenous glucose infusion did not change in NGT (0.24 [0.13–0.46] to 0.23 [0.19–0.37] nmol ⋅ min−1 ⋅ m−2) but normalized in T2DM (0.08 [−0.01 to –0.10] to 0.22 [0.07–0.30]) nmol ⋅ min−1 ⋅ m−2 at week 8 (P = 0.005). No differential effect of incretin secretion was observed after gastric bypass, with more rapid glucose absorption bringing about equivalently enhanced glucagon-like peptide 1 secretion in the two groups. CONCLUSIONS The fall in intrapancreatic triacylglycerol in T2DM, which occurs during weight loss, is associated with the condition itself rather than decreased total body fat.