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SREBP1c is a key transcription factor for de novo lipogenesis. Although SREBP1c is expressed in pancreatic islets, its physiological roles in pancreatic b-cells are largely unknown. In this study, we demonstrate that SREBP1c regulates b-cell compensation under metabolic stress. SREBP1c expression level was augmented in pancreatic islets from obese and diabetic animals. In pancreatic b-cells, SREBP1c activation promoted the expression of cell cycle genes and stimulated b-cell proliferation through its novel target gene, PAX4. Compared with SREBP1c +/+ mice, SREBP1c 2/2 mice showed glucose intolerance with low insulin levels. Moreover, b-cells from SREBP1c 2/2 mice exhibited reduced capacity to proliferate and secrete insulin. Conversely, transplantation of SREBP1c-overexpressing islets restored insulin levels and relieved hyperglycemia in streptozotocin-induced diabetic animals. Collectively, these data suggest that pancreatic SREBP1c is a key player in mediating b-cell compensatory responses in obesity.