In type 2 diabetes, pancreatic β cells fail to secrete sufficient insulin to overcome peripheral insulin resistance. Intracellular lipid accumulation contributes to β cell failure through poorly defined mechanisms. Here we report a role for the lipid-regulated protein kinase C isoform PKCε in β cell dysfunction. Deletion of PKCε augmented insulin secretion and prevented glucose intolerance in fat-fed mice. Importantly, a PKCε-inhibitory peptide improved insulin availability and glucose tolerance in db/db mice with preexisting diabetes. Functional ablation of PKCε selectively enhanced insulin release ex vivo from diabetic or lipid-pretreated islets and optimized the glucose-regulated lipid partitioning that amplifies the secretory response. Independently, PKCε deletion also augmented insulin availability by reducing both whole-body insulin clearance and insulin uptake by hepatocytes. Our findings implicate PKCε in the etiology of β cell dysfunction and highlight that enhancement of insulin availability, through separate effects on liver and β cells, provides a rationale for inhibiting PKCε to treat type 2 diabetes.