To assess functional β-cell capacity in type 2 diabetes during 2 years of remission induced by dietary weight loss. A Stepped Insulin Secretion Test with Arginine was used to quantify functional β-cell capacity by hyperglycemia and arginine stimulation. Thirty-nine of 57 participants initially achieved remission (HbA1c <6.5% [<48 mmol/mol] and fasting plasma glucose <7 mmol/L on no antidiabetic drug therapy) with a 16.4 ± 7.7 kg weight loss and were followed up with supportive advice on avoidance of weight regain. At 2 years, 20 participants remained in remission in the study. A nondiabetic control (NDC) group, matched for age, sex, and weight after weight loss with the intervention group, was studied once. During remission, median (interquartile range) maximal rate of insulin secretion increased from 581 (480-811) pmol/min/m2 at baseline to 736 (542-998) pmol/min/m2 at 5 months, 942 (565-1,240) pmol/min/m2 at 12 months (P = 0.028 from baseline), and 936 (635-1,435) pmol/min/m2 at 24 months (P = 0.023 from baseline; n = 20 of 39 of those initially in remission). This was comparable to the NDC group (1,016 [857-1,507] pmol/min/m2) by 12 (P = 0.064) and 24 (P = 0.244) months. Median first-phase insulin response increased from baseline to 5 months (42 [4-67] to 107 [59-163] pmol/min/m2; P < 0.0001) and then remained stable at 12 and 24 months (110 [59-201] and 125 [65-166] pmol/min/m2, respectively; P < 0.0001 vs. baseline) but lower than that of the NDC group (250 [226-429] pmol/min/m2; P < 0.0001). A gradual increase in assessed functional β-cell capacity occurred after weight loss, becoming similar to NDC participants by 12 months. This was unchanged at 2 years with continuing remission of type 2 diabetes. © 2020 by the American Diabetes Association.