Long-term dexamethasone (DEX) treatment is well known for its ability to increase insulin resistance in liver and adipose tissues leading to hyperinsulinemia. On the other hand, exercise enhances peripheral insulin sensitivity. However, it is not clear whether DEX and/or exercise affect β-cell mass and function in diabetic rats, and whether their effects can be associated with the modulation of the insulin/IGF-I signaling cascade in pancreatic β-cells. After an 8-week study, whole body glucose disposal rates in 90% pancreatectomized (Px) and sham-operated male rats decreased with a high dose treatment of DEX (0.1mg DEX/kg body weight/day)(HDEX) treatment, while disposal rates increased with exercise. First-phase insulin secretion was decreased and delayed by DEX via the impairment of the glucose-sensing mechanism in β-cells, while exercise reversed the impairment of first-phase insulin secretion caused by DEX, suggesting ameliorated β-cell functions. However, exercise and DEX did not alter second-phase insulin secretion except for the fact that HDEX decreased insulin secretion at 120 min during hyperglycemic clamp in Px rats. Unlike β-cell functions, DEX and exercise exhibited increased pancreatic β-cell mass in two different pathways. Only exercise, through increased proliferation and decreased apoptosis, increased β-cell mass via hyperplasia, which resulted from an enhanced insulin/IGF-I signaling cascade by insulin receptor substrate 2 induction. By contrast, DEX expanded β-cell mass via hypertrophy and neogenesis from precursor cells, rather than increasing proliferation and decreasing apoptosis. In conclusion, the improvement of β-cell function and survival via the activation of an insulin/IGF-I signaling cascade due to exercise has a crucial role in preventing the development and progression of type 2 diabetes.