The highly developed endoplasmic reticulum (ER) structure of pancreatic beta cells is a key factor in beta cell function. Here, we examined whether ER stress-induced activation of ATF6 impairs insulin gene expression via upregulation of the orphan nuclear receptor SHP (NR0B2), which has been shown to play a role in beta cell dysfunction. We examined whether ER stress decreases insulin gene expression and this process is mediated by ATF6. A small inhibitory RNA that targeted SHP was used to determine whether the effect of ATF6 on insulin gene expression is mediated by SHP. We also measured the expression level of ATF6 in pancreatic islets in OLETF rats, a rodent model of type 2 diabetes. High glucose concentration (30 mmol/l glucose) increased ER stress in INS-1 cells. ER stress induced by tunicamycin, thapsigargin or dithiotreitol decreased insulin gene transcription. ATF6 inhibited insulin promoter activity, while XBP-1 and ATF4 did not. Adenovirus-mediated overexpression of active form of ATF6 in INS-1 cells impaired insulin gene expression and secretion. ATF6 also downregulated PDX-1 and MafA gene expression and repressed the cooperative action of PDX-1, MafA and BETA2 in stimulating insulin transcription. The ATF6-induced suppression of insulin gene expression was associated with upregulation of SHP gene expression. Finally, we found that expression of ATF6 was increased in the pancreatic islets of diabetic OLETF rats compared to their lean, nondiabetic counterparts, LETO rats. Collectively, this study shows that ER stress-induced activation of ATF6 plays an important role in the development of beta cell dysfunction.