All forms of diabetes mellitus (DM) are characterized by the loss of functional pancreatic beta cell mass, leading to insufficient insulin secretion. Thus, identification of novel approaches to protect and restore beta cells is essential for the development of DM therapies. Mesencephalic astrocyte-derived neurotrophic factor (MANF) is an endoplasmic reticulum (ER)-stress-inducible protein, but its physiological role in mammals has remained obscure. We generated MANF-deficient mice that strikingly develop severe diabetes due to progressive postnatal reduction of beta cell mass, caused by decreased proliferation and increased apoptosis. Additionally, we show that lack of MANF in vivo in mouse leads to chronic unfolded protein response (UPR) activation in pancreatic islets. Importantly, MANF protein enhanced beta cell proliferation in vitro and overexpression of MANF in the pancreas of diabetic mice enhanced beta cell regeneration. We demonstrate that MANF specifically promotes beta cell proliferation and survival, thereby constituting a therapeutic candidate for beta cell protection and regeneration.