Peripheral insulin resistance and pancreatic β-cell dysfunction are hallmark characteristics of type 2 diabetes mellitus (T2DM). Several contributing factors have been proposed to promote these two defects in individuals with T2DM, including physical inactivity and chronic exposure to various psychosocial factors that increase the body's exposure to glucocorticoids, the main stress hormones in humans. Initially, β-cells have been shown to adapt to these stimuli, a phenomenon known as β-cell 'compensation'. However, long-term exposure to these physiologic and psychological stressors induces islet failure. Interestingly, glucocorticoids stimulate β-cell mass growth in parallel with promoting severe insulin resistance, the former being an important adaptive response to the latter. The direct relationship between glucocorticoids and β-cell dysfunction remains a controversial area of research. Elevations in circulating and/or tissue specific glucocorticoids have been associated with the development of obesity and T2DM in human and rodent models; however, the progression from insulin resistance to overt T2DM is highly disputed with respect to the in vivo and in vitro effects of glucocorticoids. Paradoxically, both intermittent physical stress and regular exercise alleviate insulin resistance and help to preserve β-cell mass, potentially by lowering glucocorticoid levels. Recent studies have begun to examine the mechanisms of intermittent and chronic glucocorticoid exposure and regular exercise in altering β-cell function. This review highlights recent discoveries on the physiological regulation of β-cells and diabetes development in conditions of elevated glucocorticoids, regular exercise and intermittent stress.