Calcium-binding proteins regulate transcription and secretion of pancreatic islet hormones. Here, we demonstrate neuroendocrine expression of the calcium-binding downstream regulatory element antagonistic modulator (DREAM) and its role in glucose-dependent regulation of prodynorphin (PDN) expression. DREAM is distributed throughout beta- and alpha-cells in both the nucleus and cytoplasm. As DREAM regulates neuronal dynorphin expression, we determined whether this pathway is affected in DREAM(-/-) islets. Under low glucose conditions, with intracellular calcium concentrations of <100 nM, DREAM(-/-) islets had an 80% increase in PDN message compared with controls. Accordingly, DREAM interacts with the PDN promoter downstream regulatory element (DRE) under low calcium (<100 nM) conditions, inhibiting PDN transcription in beta-cells. Furthermore, beta-cells treated with high glucose (20 mM) show increased cytoplasmic calcium (approximately 200 nM), which eliminates DREAM's interaction with the DRE, causing increased PDN promoter activity. As PDN is cleaved into dynorphin peptides, which stimulate kappa-opioid receptors expressed predominantly in alpha-cells of the islet, we determined the role of dynorphin A-(1-17) in glucagon secretion from the alpha-cell. Stimulation with dynorphin A-(1-17) caused alpha-cell calcium fluctuations and a significant increase in glucagon release. DREAM(-/-) islets also show elevated glucagon secretion in low glucose compared with controls. These results demonstrate that PDN transcription is regulated by DREAM in a calcium-dependent manner and suggest a role for dynorphin regulation of alpha-cell glucagon secretion. The data provide a molecular basis for opiate stimulation of glucagon secretion first observed over 25 years ago.