The release of insufficient amounts of insulin in the presence of elevated blood glucose levels is one of the key features of type 2 diabetes. Various lines of evidence indicate that acetylcholine (ACh), the major neurotransmitter of the parasympathetic nervous system, can enhance glucose‐stimulated insulin secretion from pancreatic β‐cells. Studies with isolated islets prepared from whole body M₃ muscarinic ACh receptor knockout mice showed that cholinergic amplification of glucose‐dependent insulin secretion is exclusively mediated by the M₃ muscarinic receptor subtype. To investigate the physiological relevance of this muscarinic pathway, we used Cre/loxP technology to generate mutant mice that lack M₃ receptors only in pancreatic β‐cells. These mutant mice displayed impaired glucose tolerance and significantly reduced insulin secretion. In contrast, transgenic mice overexpressing M₃ receptors in pancreatic β‐cells showed a pronounced increase in glucose tolerance and insulin secretion and were resistant to diet‐induced glucose intolerance and hyperglycaemia. These findings indicate that β‐cell M₃ muscarinic receptors are essential for maintaining proper insulin secretion and glucose homeostasis. Moreover, our data suggest that enhancing signalling through β‐cell M₃ muscarinic receptors may represent a new avenue in the treatment of glucose intolerance and type 2 diabetes.