Aims C‐peptide, produced by pancreatic β cells and co‐secreted in the bloodstream with insulin, has antioxidant properties in glucose‐ and hydrogen peroxide (H 2 O 2 )‐exposed INS1 β cells. Palmitic acid, the most physiologically abundant long‐chain free fatty acid in humans, is metabolized in peroxisomes of β cells accumulating H 2 O 2 that can lead to oxidative stress. Here, we tested the hypothesis that C‐peptide protects β cells from palmitic acid‐induced stress by lowering peroxisomal H 2 O 2 . Materials and methods We exposed INS1 β cells to palmitic acid and C‐peptide in the setting of increasing glucose concentration and tested for changes in parameters of stress and death. To study the ability of C‐peptide to lower peroxisomal H 2 O 2 , we engineered an INS1 β cell line stably expressing the peroxisomal‐targeted H 2 O 2 sensor HyPer, whose fluorescence increases with cellular H 2 O 2 . An INS1 β cell line stably expressing a live‐cell fluorescent catalase reporter was used to detect changes in catalase gene expression. Results C‐peptide protects INS1 β cells from the combined effect of palmitic acid and glucose by reducing peroxisomal H 2 O 2 to baseline levels and increasing expression of catalase. Conclusions In conditions of glucolipotoxicity, C‐peptide increases catalase expression and reduces peroxisomal oxidative stress and death of INS1 β cells. Maintenance of C‐peptide secretion is a pro‐survival requisite for β cells in adverse conditions. Loss of C‐peptide secretion would render β cells more vulnerable to stress and death leading to secretory dysfunction and diabetes.