To date, it remains largely unclear to what extent chromatin machinery contributes to the susceptibility and progression of complex diseases. Here, we combine deep epigenome mapping with single-cell transcriptomics to mine for evidence of chromatin dysregulation in type 2 diabetes. We find two chromatin-state signatures that track β cell dysfunction in mice and humans: ectopic activation of bivalent Polycomb-silenced domains and loss of expression at an epigenomically unique class of lineage-defining genes. β cell-specific Polycomb (Eed/PRC2) loss of function in mice triggers diabetes-mimicking transcriptional signatures and highly penetrant, hyperglycemia-independent dedifferentiation, indicating that PRC2 dysregulation contributes to disease. The work provides novel resources for exploring β cell transcriptional regulation and identifies PRC2 as necessary for long-term maintenance of β cell identity. Importantly, the data suggest a two-hit (chromatin and hyperglycemia) model for loss of β cell identity in diabetes.