Pancreatic ATP sensitive potassium (KATP) channels play an important role in insulin secretion, linking the metabolic state of the beta cell to its excitability. Protein kinase C (PKC) has previously been shown to down regulate the cell surface density of KATP channels in cardiac, neuronal and recombinant cells, but there are no studies on pancreatic beta cells. Here we show that activation of PKC results in significant down regulation of KATP channel conductance in the model beta cell line, INS1e. To investigate the underlying mechanism, we expressed a Kir6.2 construct containing an extracellular HA epitope plus SUR1 in INS1e and HEK293 cells and examined the role of PKC in regulation of cell surface density and endosomal trafficking. We found that PKC activation with the phorbol ester drug PMA reduced the surface density of KATP channels by reducing recycling of endocytosed channels, but had no effect on the rate of endocytosis. Endocytosed channels entered the peripheral and perinuclear compartments when PKC was activated, but remained at a peripheral location when PKC was inhibited with chelerythrine. Since pancreatic beta-cells express 9 different isoforms of PKC, we asked which of these isoforms is responsible for the observed effect. Using the dominant negative approach, our results show that PKC epsilon regulates endosomal trafficking of KATP channels. We conclude that that activation of PKC epsilon leads to dramatic changes in the distribution of internalised KATP channels and that the decrease in channel surface density is due to inhibition of channel recycling. The results may have important consequences for the electrical excitability of the pancreatic beta cell and therefore the insulin secretory response.