Accumulating evidence suggests that endoplasmic reticulum (ER) stress plays a role in the pathogenesis of diabetes, contributing to pancreatic β-cell loss and insulin resistance. Components of the unfolded protein response (UPR) play a dual role in β-cells, acting as beneficial regulators under physiological conditions or as triggers of β-cell dysfunction and apoptosis under situations of chronic stress. Novel findings suggest that “what makes a β-cell a β-cell”, i.e., its enormous capacity to synthesize and secrete insulin, is also its Achilles heel, rendering it vulnerable to chronic high glucose and fatty acid exposure, agents that contribute to β-cell failure in type 2 diabetes. In this review, we address the transition from physiology to pathology, namely how and why the physiological UPR evolves to a proapoptotic ER stress response and which defenses are triggered by β-cells against these challenges. ER stress may also link obesity and insulin resistance in type 2 diabetes. High fat feeding and obesity induce ER stress in liver, which suppresses insulin signaling via c-Jun N-terminal kinase activation. In vitro data suggest that ER stress may also contribute to cytokine-induced β-cell death. Thus, the cytokines IL-1β and interferon-γ, putative mediators of β-cell loss in type 1 diabetes, induce severe ER stress through, respectively, NO-mediated depletion of ER calcium and inhibition of ER chaperones, thus hampering β-cell defenses and amplifying the proapoptotic pathways. A better understanding of the pathways regulating ER stress in β-cells may be instrumental for the design of novel therapies to prevent β-cell loss in diabetes.