Insulin resistance is a hallmark feature of Type 2 Diabetes (T2D), but the progression of the disease is closely linked to a deterioration in β-cell mass and function. While the precise mechanisms of β-cell failure are unclear, chronic hyperglycemia (glucotoxicity) and dyslipidemia (lipotoxicity) are considered contributing factors; however, the relative importance of these insults on β-cell function remains controversial. To examine this, we dissociated glucotoxicity from lipotoxicity using a high-fat diet (HFD)-fed mouse model of T2D and the glucose-lowering SGLT2 inhibitor, canagliflozin (CANA). As expected, HFD-feeding impaired glucose tolerance and isolated islet function. However, despite improvements in glucose tolerance and indices of β-cell insulin secretory function in vivo, CANA failed to restore isolated β-cell function. Shotgun lipidomics analysis of isolated islets revealed that HFD-feeding induced glycerophospholipid remodeling with a persistent increase in arachidonic acid (20:4)-enriched molecular species. Further analysis revealed that lysophosphatidylcholine (LPC) was the predominant lipid class elevated in HFD islets following correction of glucotoxicity with CANA. In follow-up experiments, LPC stimulations acutely and dose-dependently impaired glucose-stimulated insulin secretion (GSIS) in isolated wild-type islets, mechanistically linking this lipid class to β-cell dysfunction. Our findings indicate that persistent inflammatory lipotoxicity impedes β-cell function in diet-induced obese (DIO) rodents even after normalization of hyperglycemia. If replicated in humans, these data suggest that interventions targeting lipotoxicity may be beneficial for the long-term protection of pancreatic β-cell function in T2D.