Prader-Willi syndrome (PWS) is a multisystem disorder caused by genetic loss of function of a cluster of imprinted, paternally expressed genes. Neonatal failure to thrive in PWS is followed by childhood-onset hyperphagia and obesity among other endocrine and behavioral abnormalities. PWS is typically assumed to be caused by an unknown hypothalamic-pituitary dysfunction, but the underlying pathogenesis remains unknown. A transgenic deletion mouse model (TgPWS) has severe failure to thrive, with very low levels of plasma insulin and glucagon in fetal and neonatal life prior to and following onset of progressive hypoglycemia. In this study, we tested the hypothesis that primary deficits in pancreatic islet development or function may play a fundamental role in the TgPWS neonatal phenotype. Major pancreatic islet hormones (insulin, glucagon) were decreased in TgPWS mice, consistent with plasma levels. Immunohistochemical analysis of the pancreas demonstrated disrupted morphology of TgPWS islets, with reduced α- and β-cell mass arising from an increase in apoptosis. Furthermore, in vivo and in vitro studies show that the rate of insulin secretion is significantly impaired in TgPWS β-cells. In TgPWS pancreas, mRNA levels for genes encoding all pancreatic hormones, other secretory factors, and the ISL1 transcription factor are upregulated by either a compensatory response to plasma hormone deficiencies or a primary effect of a deleted gene. Our findings identify a cluster of imprinted genes required for the development, survival, coordinate regulation of genes encoding hormones, and secretory function of pancreatic endocrine cells, which may underlie the neonatal phenotype of the TgPWS mouse model.