Type 2 diabetes ultimately results from pancreatic β-cell failure. Abnormally elevated intracellular regeneration of glucocorticoids by the enzyme 11β-hydroxysteroid dehydrogenase type 1 (11β-HSD1) in fat or liver may underlie pathophysiological aspects of the metabolic syndrome. Elevated 11β-HSD1 is also found in pancreatic islets of obese/diabetic rodents and is hypothesized to suppress insulin secretion and promote diabetes. To define the direct impact of elevated pancreatic β-cell 11β-HSD1 on insulin secretion, we generated β-cell–specific, 11β-HSD1–overexpressing (MIP-HSD1) mice on a strain background prone to β-cell failure. Unexpectedly, MIP-HSD1tg/+ mice exhibited a reversal of high fat–induced β-cell failure through augmentation of the number and intrinsic function of small islets in association with induction of heat shock, protein kinase A, and extracellular signal–related kinase and p21 signaling pathways. 11β-HSD1−/− mice showed mild β-cell impairment that was offset by improved glucose tolerance. The benefit of higher β-cell 11β-HSD1 exhibited a threshold because homozygous MIP-HSD1tg/tg mice and diabetic Lepdb/db mice with markedly elevated β-cell 11β-HSD1 levels had impaired basal β-cell function. Optimal elevation of β-cell 11β-HSD1 represents a novel biological mechanism supporting compensatory insulin hypersecretion rather than exacerbating metabolic disease. These findings have immediate significance for current therapeutic strategies for type 2 diabetes.