Excessive caloric intake leading to obesity is associated with insulin resistance and dysfunction of islet β cells. High-fat feeding decreases desnutrin (also called ATGL/PNPLA2) levels in islets. Here we show that desnutrin ablation via RIP-Cre (βKO) or RIP-CreER results in hyperglycemia with impaired glucose-stimulated insulin secretion (GSIS). Due to decreased lipolysis, islets have higher TAG content but lower free FA levels. βKO islets exhibit impaired mitochondrial respiration and lower production of ATP required for GSIS, along with decreased expression of PPARδ target genes involved in mitochondrial oxidation. Furthermore, synthetic PPARδ, but not PPARα, agonist restores GSIS and expression of mitochondrial oxidative genes in βKO mice, revealing that desnutrin-catalyzed lipolysis generates PPARδ ligands. Finally, adenoviral expression of desnutrin in βKO islets restores all defects of βKO islet phenotype and function, including GSIS and mitochondrial defects, demonstrating the critical role of the desnutrin-PPARδ-mitochondrial oxidation axis in regulating islet β cell GSIS.