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The metabolic syndrome is associated with an increase in the activation of the renin angiotensin system, whose inhibition reduces the incidence of new-onset diabetes. Importantly, angiotensin II (AngII), independently of its vasoconstrictor action, causes β-cell inflammation and dysfunction, which may be an early step in the development of type 2 diabetes. The aim of this study was to determine how AngII causes β-cell dysfunction. Islets of Langerhans were isolated from C57BL/6J mice that had been infused with AngII in the presence or absence of taurine-conjugated ursodeoxycholic acid (TUDCA) and effects on endoplasmic reticulum (ER) stress, inflammation, and β-cell function determined. The mechanism of action of AngII was further investigated using isolated murine islets and clonal β cells. We show that AngII triggers ER stress, an increase in the messenger RNA expression of proinflammatory cytokines, and promotes β-cell dysfunction in murine islets of Langerhans both in vivo and ex vivo. These effects were significantly attenuated by TUDCA, an inhibitor of ER stress. We also show that AngII-induced ER stress is required for the increased expression of proinflammatory cytokines and is caused by reactive oxygen species and IP3 receptor activation. These data reveal that the induction of ER stress is critical for AngII-induced β-cell dysfunction and indicates how therapies that promote ER homeostasis may be beneficial in the prevention of type 2 diabetes.