In previous studies, glucagon receptor knockout mice (Gcgr^−/−) display reduced blood glucose and increased glucose tolerance, with hyperglucagonemia and increased levels of glucagon-like peptide (GLP)-1. However, the role of glucagon receptor signaling for the regulation of islet function and insulin sensitivity is unknown. We therefore explored β-cell function and insulin sensitivity in Gcgr^−/− and wild-type mice. The steady-state glucose infusion rate during hyperinsulinemic-euglycemic clamp was elevated in Gcgr^−/− mice, indicating enhanced insulin sensitivity. Furthermore, the acute insulin response (AIR) to intravenous glucose was higher in Gcgr^−/− mice. The augmented AIR to glucose was blunted by the GLP-1 receptor antagonist, exendin-3. In contrast, AIR to intravenous administration of other secretagogues was either not affected (carbachol) or significantly reduced (arginine, cholecystokinin octapeptide) in Gcgr^−/− mice. In islets isolated from Gcgr^−/− mice, the insulin responses to glucose and several insulin secretagogues were all significantly blunted compared with wild-type mice. Furthermore, glucose oxidation was reduced in islets from Gcgr^−/− mice. In conclusion, the present study shows that glucagon signaling is required for normal β-cell function and that insulin action is improved when disrupting the signal. In vivo, augmented GLP-1 levels compensate for the impaired β-cell function in Gcgr^−/− mice.