Islet amyloid polypeptide (IAPP; amylin) is a peptide hormone that is co-secreted with insulin from -cells. Impaired processing of proIAPP, the IAPP precursor, has been implicated in islet amyloid formation in type 2 diabetes. We previously showed that proIAPP is processed to IAPP by the prohormone convertases PC1/3 and PC2 at its COOH- and NH₂-termini, respectively. In this study, we investigated the role of carboxypeptidase E (CPE) in the processing of proIAPP using mice lacking active CPE (Cpe^fat/Cpe^fat) and NIT-2 cells, a -cell line derived from their islets. Western blot analysis demonstrated that a 6 kDa NH₂-terminally unprocessed form of proIAPP was elevated 86% in islets from Cpe^fat/Cpe^fat mice compared with wild-type. This increase was independent of the development of hyperglycemia (8-wk male) or obesity (18-wk female). Impaired proIAPP processing was associated with a decrease in PC2 (but not PC1/3) and both the 21 and 27 kDa forms of the PC2 chaperone protein 7B2, suggesting that PC2-mediated processing of proIAPP at its NH₂-terminus was impaired in the absence of CPE. Formation of COOH-terminally amidated (pro)IAPP was reduced 75% in NIT-2 compared with NIT-1 -cells, supporting a direct role for CPE in maturation of IAPP by removal of its COOH-terminal dibasic residues, the step essential for IAPP amidation. We conclude that lack of CPE in islet -cells results in a marked decrease in processing of proIAPP at its NH₂- (but not COOH-) terminus that is associated with attenuated levels of PC2 and (pro)7B2 and a great reduction in formation of mature amidated IAPP.