Mutations in PERK (EIF2AK3) result in permanent neonatal diabetes as well as several other anomalies that underlie the human Wolcott-Rallison syndrome, and these anomalies are mirrored in Perk knockout mice. To identify the cause of diabetes in PERK-deficient mice, we generated a series of tissue- and cell-specific knockouts of the Perk gene and performed a developmental analysis of the progression to overt diabetes. We discovered that PERK is specifically required in the insulin-secreting beta cells during the fetal and early neonatal period as a prerequisite for postnatal glucose homeostasis. However, PERK expression in beta cells is not required at the adult stage to maintain beta cell functions and glucose homeostasis. We show that PERK-deficient mice exhibit severe defects in fetal/neonatal beta cell proliferation and differentiation, resulting in low beta cell mass, defects in proinsulin trafficking, and abrogation of insulin secretion that culminate in permanent neonatal diabetes.