My best friend who is very active at my church is dating a male to female transgender. He thinks he is a girl but really she was born a male. I don't think he knows this yet but I don't want him to get hurt. He is very active with the youth group at my church and I'm not sure if I should warn him, pray, or just stay out of his business.

this is a confusing sentence, is it about one person?

You should tell him in my opinion. Well, really, it should be the responsibility of the transgender person to tell him at the start of the relationship. Why do you know this and he doesn't?

I don't see why it's anyone's business. If the man is now a woman and all surgery is completed, he is now a she. Nothing to argue about.
If the woman makes your friend happy and still stays active in the church, what's the problem?

tell him it's a guy...

I would want you to tell me but that doesn't mean he would want you to tell him

I don't buy into the political correctness hooey fooey about she is a woman now it's no ones business blah blah

It may not be everyone's business but it is certainly his business as the other half of that relationship, personally I would talk to her and without coming off as threatening try to explain your side of this situation, how it puts you in a bind with your friend and see how she responds

There are no universal solutions to these predicaments, you know your friend best so only you can decide what you think he would want.

Just keep in mind that she is not the enemy, she is a person that he cares for and as his best friend one that you should show compassion to.