Reversible phosphorylation is an important regulatory mechanism. Regulation of protein phosphorylation in β-cells has been extensively investigated, but less is known about protein dephosphorylation. To understand the role of protein dephosphorylation in β-cells and type 2 diabetes (T2D), we first examined mRNA expression of the type 2C family (PP2C) of protein phosphatases in islets from T2D donors. Phosphatase expression overall was changed in T2D, and that of PPM1E was the most markedly downregulated. PPM1E expression correlated inversely with HbA1c. Silencing of PPM1E increased glucose-stimulated insulin secretion (GSIS) in INS-1 832/13 cells and/or islets from patients with T2D, whereas PPM1E overexpression decreased GSIS. Increased GSIS after PPM1E silencing was associated with decreased oxidative stress, elevated cytosolic Ca2+ levels and ATP to ADP ratio, increased hyperpolarization of the inner mitochondrial membrane, and phosphorylation of CaMKII, AMPK, and acetyl-CoA carboxylase. Silencing of PPM1E, however, did not change insulin content. Increased GSIS, cell viability, and activation of AMPK upon metformin treatment in β-cells were observed upon PPM1E silencing. Thus, protein dephosphorylation via PPM1E abrogates GSIS. Consequently, reduced PPM1E expression in T2D may be a compensatory response of β-cells to uphold insulin secretion under metabolic duress. Targeting PPM1E in β-cells may thus represent a novel therapeutic strategy for treatment of T2D.