Background: Islet autoimmunity may contribute to beta-cell dysfunction in type 2 diabetes (T2D). Its prevalence and clinical significance have not been rigorously determined. We investigated the prevalence of cellular and humoral islet autoimmunity in T2D and their relation to beta-cell function. Methods: The study was nested in the Glycemia Reduction Approaches in Diabetes – A Comparative Effectiveness (GRADE) study. Participants included 419 T2D patients (age 57·4±10·3 y [mean±SD], body mass index 33·6±6·2 kg/m2, diabetes duration 4·0±3·0 y, HbA1c 7·5±0·5%). We measured humoral (autoantibodies against GAD65, IA2, ZnT8) and cellular (T-cell autoreactivity against islet antigens) autoimmunity, beta-cell function (ratio of incremental area under the curve of C-peptide to that of glucose from 0–120 min of an oral glucose tolerance test [iAUC-CG]), and ratio of C-peptide to glucose from 0–30 min (∆C-peptide(0–30)/∆glucose(0–30)), and glycemic parameters. Findings: Cellular islet autoimmunity was present in 41·3%, humoral islet autoimmunity in 13·5%, and both in 5·3%. iAUC-CG and ∆C-peptide(0–30)/∆glucose(0–30) were lower among T-cell-positives than -negatives using two different adjustments for insulin sensitivity (iAUC-CG: 13·2% [95% CI 0·3, 24·4%] or 11·4% [95% CI 0·4, 21·2%] lower; ∆C-peptide(0–30)/∆glucose(0–30)) 19% [95% CI 3·1, 32·3%] or 17·7% [95% CI 2·6, 30·5%] lower). T-cell-positives had 0·17% higher HbA1c (95% CI 0·07,0·28) and 7·7 mg/dL higher fasting plasma glucose levels (95% CI 0·2,15·3) than T-cell-negatives. Interpretation: Islet autoimmunity is highly prevalent in patients with T2D. T-cell-mediated autoimmunity is associated with diminished beta-cell function and worse glycemic control. Funding Information: This study was funded by the NIH. This ancillary study to the GRADE study was independently funded by grant R01DK104832 (to AB and JPP) from the National Institute of Diabetes and Digestive and Kidney Diseases. The GRADE study is supported by a grant from the National Institute of Diabetes and Digestive and Kidney Diseases (NIDDK) of the National Institutes of Health under Award Number U01DK098246. The planning of GRADE was supported by a U34 planning grant from the NIDDK (U34-DK-088043). The American Diabetes Association supported the initial planning meeting for the U34 proposal. The National Heart, Lung, and Blood Institute and the Centers for Disease Control and Prevention also provided funding support. The Department of Veterans Affairs provided resources and facilities. Additional support was provided by grant numbers P30 DK017047, P30 DK020541-44, P30 DK020572, P30 DK072476, P30 DK079626, P30 DK092926, U54 GM104940, UL1 TR000439, UL1 TR000445, UL1 TR001108, UL1 TR001409, UL1 TR001449, UL1 TR002243, UL1 TR002345, UL1 TR002378, UL1 TR002489, UL1 TR002489, UL1 TR002529, UL1 TR002535, UL1 TR002537, and UL1 TR002548. Educational materials have been provided by the National Diabetes Education Program. Material support in the form of donated medications and supplies has been provided by Becton, Dickinson an Company, Bristol-Myers Squibb, Merck, NovoNordisk, Roche Diagnostics, and Sanofi. Declaration of Interests: The authors declare no conflicts of interest. Ethics Approval Statement: Nineteen centers obtained local Institutional Review Board approval for the ancillary study and contributed participants.