The failure of pancreatic β cells to adapt to an increasing demand for insulin is the major mechanism by which patients progress from insulin resistance to type 2 diabetes (T2D) and is thought to be related to dysfunctional lipid homeostasis within those cells. In multiple animal models of diabetes, females demonstrate relative protection from β cell failure. We previously found that the hormone 17β-estradiol (E2) in part mediates this benefit. Here, we show that treating male Zucker diabetic fatty (ZDF) rats with E2 suppressed synthesis and accumulation of fatty acids and glycerolipids in islets and protected against β cell failure. The antilipogenic actions of E2 were recapitulated by pharmacological activation of estrogen receptor α (ERα) or ERβ in a rat β cell line and in cultured ZDF rat, mouse, and human islets. Pancreas-specific null deletion of ERα in mice (PERα^–/–) prevented reduction of lipid synthesis by E2 via a direct action in islets, and PERα^–/– mice were predisposed to islet lipid accumulation and β cell dysfunction in response to feeding with a high-fat diet. ER activation inhibited β cell lipid synthesis by suppressing the expression (and activity) of fatty acid synthase via a nonclassical pathway dependent on activated Stat3. Accordingly, pancreas-specific deletion of Stat3 in mice curtailed ER-mediated suppression of lipid synthesis. These data suggest that extranuclear ERs may be promising therapeutic targets to prevent β cell failure in T2D.