Peroxisome proliferator-activated receptor gamma-coactivator-1 (PGC-1) is significantly elevated in the islets of animal models of diabetes. However, the molecular mechanism has not been clarified. We investigated whether the suppression of PGC-1 expression protects against -cell dysfunction in vivo and determined the mechanism of action of PGC-1 in -cells. The studies were performed in glucolipotixicity-induced primary rat islets and INS-1 cells. In vitro and in vivo approaches using adenoviruses were used to evaluate the role of PGC-1 in glucolipotoxicity-associated -cell dysfunction. The expression of PGC-1 in cultured -cells increased gradually with glucolipotoxicity. The overexpression of PGC-1 also suppressed the expression of the insulin and -cell E-box transcription factor (BETA2/NeuroD) genes, which was reversed by PGC-1 siRNA. BETA2/NeuroD, p300-enhanced BETA2/NeuroD, and insulin transcriptional activities were significantly suppressed by Ad–PGC-1 but were rescued by Ad–siPGC-1. PGC-1 binding at the glucocorticoid receptor (GR) site on the BETA2/NeuroD promoter increased in the presence of PGC-1. Ad–siPGC-1 injection through the celiac arteries of 90% pancreatectomized diabetic rats improved their glucose tolerance and maintained their fasting insulin levels. The suppression of PGC-1 expression protects the glucolipotoxicity-induced -cell dysfunction in vivo and in vitro. A better understanding of the functions of molecules such as PGC-1, which play key roles in intracellular fuel regulation, could herald a new era of the treatment of patients with type2 diabetes mellitus by providing protection from glucolipotoxicity, which is an important cause of the development and progression of the disease.