In many aspects the onset of a chronic disease resembles a phase transition in a complex dynamic system: Quantitative changes accumulate largely unnoticed until a critical threshold is reached, which causes abrupt qualitative changes of the system. In this study we examine a special case, the onset of type-1 diabetes (T1D), a disease that results from loss of the insulin-producing pancreatic islet β cells. Within each islet, the β cells are electrically coupled to each other via gap-junctional channels. This intercellular coupling enables the β cells to synchronize their insulin release, thereby generating the multiscale temporal rhythms in blood insulin that are critical to maintaining blood glucose homeostasis. Using percolation theory we show how normal islet function is intrinsically linked to network connectivity. In particular, the critical amount of β-cell death at which the islet cellular network loses site percolation is consistent with laboratory and clinical observations of the threshold loss of β cells that causes islet functional failure. In addition, numerical simulations confirm that the islet cellular network needs to be percolated for β cells to synchronize. Furthermore, the interplay between site percolation and bond strength predicts the existence of a transient phase of islet functional recovery after onset of T1D and introduction of treatment, potentially explaining the honeymoon phenomenon. Based on these results, we hypothesize that the onset of T1D may be the result of a phase transition of the islet β-cell network.