As a tool to explore proinsulin (PI) trafficking, a human PI cDNA has been constructed with GFP fused within the C peptide. In regulated secretory cells containing appropriate prohormone convertases, the hProCpepGFP construct undergoes endoproteolytic processing to CpepGFP and native human insulin, which are specifically detected and cosecreted in parallel with endogenous insulin. Expression of C(A7)Y mutant PI results in autosomal dominant diabetes in Akita mice. We directly identify the misfolded PI in Akita islets and also show that C(A7)Y mutant PI, either in the context of the hProCpepGFP chimera or not, engages directly in protein complexes with nonmutant PI, impairing the trafficking and recovery of nonmutant PI. This trapping mechanism decreases insulin production in β cells. Thereafter we observe a loss of β cell viability. The data imply that PI misfolding leading to impaired endoplasmic reticulum exit of nonmutant PI may be a key early step in a chain reaction of β cell dysfunction and demise leading to onset and progression of diabetes.