As a key regulator of the unfolded protein response, the transcription factor XBP1 activates genes in protein secretory pathways and is required for the development of certain secretory cells. To elucidate the function of XBP1 in pancreatic β-cells, we generated β-cell-specific XBP1 mutant mice. Xbp1^f/f;RIP-cre mice displayed modest hyperglycemia and glucose intolerance resulting from decreased insulin secretion from β-cells. Ablation of XBP1 markedly decreased the number of insulin granules in β-cells, impaired proinsulin processing, increased the serum proinsulin:insulin ratio, blunted glucose-stimulated insulin secretion, and inhibited cell proliferation. Notably, XBP1 deficiency not only compromised the endoplasmic reticulum stress response in β-cells but also caused constitutive hyperactivation of its upstream activator, IRE1α, which could degrade a subset of mRNAs encoding proinsulin-processing enzymes. Hence, the combined effects of XBP1 deficiency on the canonical unfolded protein response and its negative feedback activation of IRE1α caused β-cell dysfunction in XBP1 mutant mice. These results demonstrate that IRE1α has dual and opposing roles in β-cells, and that a precisely regulated feedback circuit involving IRE1α and its product XBP1s is required to achieve optimal insulin secretion and glucose control.