The pathogenetic mechanisms causing type 2 diabetes are complex, and include a significant reduction of the incretin effect. In patients with type 2 diabetes, GLP-1 secretion may be impaired, while GIP secretion seems unaffected. In contrast, the insulinotropic activity of GIP is severely altered, whereas that of GLP-1 is maintained to a great extent. Better understanding of the role of incretin hormones in glucose homeostasis has led to the development of incretin-based therapies that complement and offer important advantages over previously used agents. Incretin-based agents have significant glucose-lowering effects, promote weight loss (or are weight-neutral), inhibit glucagon secretion while maintaining counter-regulatory mechanisms, exhibit cardiovascular benefits, and protect β-cells while possessing a low risk profile. At present, incretin-based therapies are most widely used as add on to metformin to provide sufficient glycemic control after metformin failure. However, they are also recommended as monotherapy early in the disease course, and later in triple combination. These agents may also be a promising therapeutic tool in prediabetic subjects. Therefore, a therapeutic algorithm is needed for their optimal application at different stages of diabetes, as suggested in this article.