Progressive loss of pancreatic β-cell functional mass and anti-diabetic drug responsivity are classic findings in diabetes, frequently attributed to compensatory insulin hypersecretion and β-cell exhaustion. However, loss of β-cell mass and identity still occurs in mouse models of human KATP-gain-of-function induced Neonatal Diabetes Mellitus (NDM), in the absence of insulin secretion. Here we studied the temporal progression and mechanisms underlying glucotoxicity-induced loss of functional β-cell mass in NDM mice, and the effects of sodium-glucose transporter 2 inhibitors (SGLT2i) therapy. Upon tamoxifen induction of transgene expression, NDM mice rapidly developed severe diabetes followed by an unexpected loss of insulin content, decreased proinsulin processing and increased proinsulin at 2-weeks of diabetes. These early events were accompanied by a marked increase in β-cell oxidative and ER stress, without changes in islet cell identity. Strikingly, treatment with the SGLT2 inhibitor dapagliflozin restored insulin content, decreased proinsulin:insulin ratio and reduced oxidative and ER stress. However, despite reduction of blood glucose, dapagliflozin therapy was ineffective in restoring β-cell function in NDM mice when it was initiated at >40 days of diabetes, when loss of β-cell mass and identity had already occurred. Our data from mouse models demonstrate that: i) hyperglycemia per se, and not insulin hypersecretion, drives β-cell failure in diabetes, ii) recovery of β-cell function by SGLT2 inhibitors is potentially through reduction of oxidative and ER stress, iii) SGLT2 inhibitors revert/prevent β-cell failure when used in early stages of diabetes, but not when loss of β-cell mass/identity already occurred, iv) common execution pathways may underlie loss and recovery of β-cell function in different forms of diabetes. These results may have important clinical implications for optimal therapeutic interventions in individuals with diabetes, particularly for those with long-standing diabetes.