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Current endeavors in the type 2 diabetes (T2D) field include gaining a better understanding of extracellular signaling pathways that regulate pancreatic islet function. Recent data suggest that both Bmp and Wnt pathways are operative in pancreatic islets and play a positive role in insulin secretion and glucose homeostasis. Our laboratory found the dual Bmp and Wnt antagonist Sostdc1 to be upregulated in a mouse model of islet dysmorphogenesis and nonimmune-mediated lean diabetes. Because Bmp signaling has been proposed to enhance β-cell function, we evaluated the role of Sostdc1 in adult islet function using animals in which Sostdc1 was globally deleted. While Sostdc1-null animals exhibited no pancreas development phenotype, a subset of mutants exhibited enhanced insulin secretion and improved glucose homeostasis compared with control animals after 12-wk exposure to high-fat diet. Loss of Sostdc1 in the setting of metabolic stress results in altered expression of Bmp-responsive genes in islets but did not affect expression of Wnt target genes, suggesting that Sostdc1 primarily regulates the Bmp pathway in the murine pancreas. Furthermore, our data indicate that removal of Sostdc1 enhances the downregulation of the closely related Bmp inhibitors Ctgf and Gremlin in islets after 8-wk exposure to high-fat diet. These data imply that Sostdc1 regulates expression of these inhibitors and provide a means by which Sostdc1-null animals show enhanced insulin secretion and glucose homeostasis. Our studies provide insights into Bmp pathway regulation in the endocrine pancreas and reveal new avenues for improving β-cell function under metabolic stress.