We used transgenesis to explore the requirement for downregulation of hepatocyte nuclear factor 6 (HNF6) expression in the assembly, differentiation, and function of pancreatic islets. In vivo, HNF6 expression becomes downregulated in pancreatic endocrine cells at 18. 5 days post coitum (d.p.c.), when definitive islets first begin to organize. We used an islet-specific regulatory element (pdx1(PB)) from pancreatic/duodenal homeobox (pdx1) gene to maintain HNF6 expression in endocrine cells beyond 18.5 d.p.c. Transgenic animals were diabetic. HNF6-overexpressing islets were hyperplastic and remained very close to the pancreatic ducts. Strikingly, alpha, delta, and PP cells were increased in number and abnormally intermingled with islet beta cells. Although several mature beta cell markers were expressed in beta cells of transgenic islets, the glucose transporter GLUT2 was absent or severely reduced. As glucose uptake/metabolism is essential for insulin secretion, decreased GLUT2 may contribute to the etiology of diabetes in pdx1(PB)-HNF6 transgenics. Concordantly, blood insulin was not raised by glucose challenge, suggesting profound beta cell dysfunction. Thus, we have shown that HNF6 downregulation during islet ontogeny is critical to normal pancreas formation and function: continued expression impairs the clustering of endocrine cells and their separation from the ductal epithelium, disrupts the spatial organization of endocrine cell types within the islet, and severely compromises beta cell physiology, leading to overt diabetes.