Decreased β cell mass and function are hallmarks of type 2 diabetes. Here we identified, through a siRNA screen, beta site amyloid precursor protein cleaving enzyme 2 (Bace2) as the sheddase of the proproliferative plasma membrane protein Tmem27 in murine and human β cells. Mice with functionally inactive Bace2 and insulin-resistant mice treated with a newly identified Bace2 inhibitor both display augmented β cell mass and improved control of glucose homeostasis due to increased insulin levels. These results implicate Bace2 in the control of β cell maintenance and provide a rational strategy to inhibit this protease for the expansion of functional pancreatic β cell mass.