Although higher rates of depression are found among individuals with type 2 diabetes, it remains unknown if the presence of depressive symptoms is associated with heightened metabolic risk for the development of type 2 diabetes among youth. The objective of this study was to evaluate whether depressive symptoms in obese adolescents are associated with impaired β-cell function relative to insulin sensitivity [oral disposition index (oDI)] and/or dysglycemia or prediabetes, predictors of type 2 diabetes development. Fasting and oral glucose tolerance test (OGTT)-derived indices of glucose tolerance, insulin sensitivity, secretion, and oDI were evaluated in obese youth (n = 56, age 15.0 ± 1.6 yr, 68% female). The Children's Depression Inventory was utilized to determine depressive symptomatology. Despite no association between depressive symptoms and measures of adiposity, youth with higher depressive symptoms had (i) significantly higher fasting and stimulated glucose levels (13% higher glucose area under the OGTT curve), (ii) ∼50% lower oDI, and (iii) a 50% frequency of prediabetes. These data point to an important relationship between depressive symptoms and a heightened metabolic risk for type 2 diabetes in obese adolescents, including prediabetes and impairment in β-cell function relative to insulin sensitivity. While the directionality of these relationships is unknown, it should be determined if treating one disorder improves the other or vice versa.