In individuals with type 2 diabetes, SGLT2-inhibitors increase beta-cell glucose sensitivity (BGS) and insulin sensitivity. This effect has been attributed to glucotoxicity alleviation; however, few research has taken into account changes in glycemia. The effects of empagliflozin on BGS and secondarily, peripheral insulin sensitivity (IS), compared to similar glycemic control with insulin treatment were explored. 17 subjects with T2D were treated with empagliflozin and NPH-insulin for 5 weeks in a randomized cross-over study design with a 3-week of washout period included. Insulin doses were adjusted to achieve equivalent glycemic control as empagliflozin. Both the treatments similarly reduced glycaemia and fasting insulin concentrations were lower with empagliflozin and higher with insulin. Empagliflozin resulted an increase in fasting hepatic glucose production compared to insulin, but postprandial hepatic glucose production did not differ between treatments. Beta-cell glucose sensitivity was greater with empagliflozin compared to insulin and insulin sensitivity was found to be unchanged with empagliflozin, but it decreased with insulin compared to washout. Fatty tissue insulin resistance was lower with empagliflozin compared to insulin. Reduced glucotoxicity does not result in improved beta-cell function with empagliflozin treatment. Insulin resistance can be caused by peripheral hyperinsulinemia.