The highly developed endoplasmic reticulum (ER) structure of pancreatic β-cells is a key factor in β-cell function. Here we examined whether ER stress-induced activation of activating transcription factor (ATF)-6 impairs insulin gene expression via up-regulation of the orphan nuclear receptor small heterodimer partner (SHP; NR0B2), which has been shown to play a role in β-cell dysfunction. We examined whether ER stress decreases insulin gene expression, and this process is mediated by ATF6. A small interfering RNA that targeted SHP was used to determine whether the effect of ATF6 on insulin gene expression is mediated by SHP. We also measured the expression level of ATF6 in pancreatic islets in Otsuka Long Evans Tokushima Fatty rats, a rodent model of type 2 diabetes. High glucose concentration (30 mmol/liter glucose) increased ER stress in INS-1 cells. ER stress induced by tunicamycin, thapsigargin, or dithiotreitol decreased insulin gene transcription. ATF6 inhibited insulin promoter activity, whereas X-box binding protein-1 and ATF4 did not. Adenovirus-mediated overexpression of active form of ATF6 in INS-1 cells impaired insulin gene expression and secretion. ATF6 also down-regulated pancreatic duodenal homeobox factor-1 and RIPE3b1/MafA gene expression and repressed the cooperative action of pancreatic duodenal homeobox factor-1, RIPE3b1/MafA, and β-cell E box transactivator 2 in stimulating insulin transcription. The ATF6-induced suppression of insulin gene expression was associated with up-regulation of SHP gene expression. Finally, we found that expression of ATF6 was increased in the pancreatic islets of diabetic Otsuka Long Evans Tokushima Fatty rats, compared with their lean, nondiabetic counterparts, Long-Evans Tokushima Otsuka rats. Collectively, this study shows that ER stress-induced activation of ATF6 plays an important role in the development of β-cell dysfunction.