Islet amyloid, formed by aggregation of islet amyloid polypeptide (IAPP; amylin), is a pathological characteristic of the pancreas in type 2 diabetes and may contribute to the progressive loss of β-cells in this disease. We tested the hypothesis that impaired processing of the IAPP precursor proIAPP contributes to amyloid formation and cell death. GH3 cells lacking the prohormone convertase 1/3 (PC1/3) and IAPP and with very low levels of prohormone convertase 2 (PC2) were transduced with adenovirus (Ad) expressing human or rat (control) proIAPP linked to green fluorescent protein, with or without Ad-PC2 or Ad-PC1/3. Expression of human proIAPP increased the number of transferase-mediated dUTP nick-end labeling (TUNEL)-positive cells 96 h after transduction (+hIAPP 8.7 ± 0.4% vs. control 3.0 ± 0.4%; P < 0.05). COOH-terminal processing of human proIAPP by PC1/3 increased (hIAPP+PC1/3 10.4 ± 0.7%; P < 0.05), whereas NH₂-terminal processing of proIAPP by addition of PC2 markedly decreased (hIAPP+PC2 5.5 ± 0.5%; P < 0.05) the number of apoptotic GH3 cells. Islets from mice lacking PC2 and with β-cell expression of human proIAPP (hIAPP^+/+/PC2^−/−) developed amyloid associated with β-cell death during 2-week culture. Rescue of PC2 expression by ex vivo transduction with Ad-PC2 restored NH₂-terminal processing to mature IAPP and decreased both the extent of amyloid formation and the number of TUNEL-positive cells (−PC2 26.5 ± 4.1% vs. +PC2 16.1 ± 4.3%; P < 0.05). These findings suggest that impaired NH₂-terminal processing of proIAPP leads to amyloid formation and cell death and that accumulation of the NH₂-terminally extended human proIAPP intermediate may be a critical initiating step in amyloid formation.