The protein p27^Kip1 regulates cell cycle progression in mammals by inhibiting the activity of cyclin-dependent kinases (CDKs). Here we show that p27^Kip1 progressively accumulates in the nucleus of pancreatic beta cells in mice that lack either insulin receptor substrate 2 (Irs2^−/−) or the long form of the leptin receptor (Lepr^−/− or db/db). Deletion of the gene encoding p27^Kip1 (Cdkn1b) ameliorated hyperglycemia in these animal models of type 2 diabetes mellitus by increasing islet mass and maintaining compensatory hyperinsulinemia, effects that were attributable predominantly to stimulation of pancreatic beta-cell proliferation. Thus, p27^Kip1 contributes to beta-cell failure during the development of type 2 diabetes in Irs2^−/− and Lepr^−/− mice and represents a potential new target for the treatment of this condition.