Transcriptional control mediated by the cyclic AMP-responsive element (CRE) represents an important mechanism of gene regulation. To test our hypothesis that increased inducible cyclic AMP early repressor (ICER) Igamma inhibits function of CRE-binding proteins and thus disrupts CRE-mediated transcription in pancreatic beta cells, we generated transgenic mice with beta-cell-directed expression of ICER Igamma, a powerful repressor that is greatly increased in diabetes. Three transgenic lines clearly show that increased ICER Igamma expression in beta cells results in early severe diabetes. From birth islets were severely disorganized with a significantly increased proportion of alpha cells throughout the islet. Diabetes results from the combined effects of impaired insulin expression and a decreased number of beta cells. The decrease in beta cells appears to result from impaired proliferation rather than from increased apoptosis after birth. Cyclin A gene expression is impaired by the strong inhibition of ICER; the suppression of cyclin A results in a substantially decreased proliferation of beta cells in the postnatal period. These results suggest that CRE and CRE-binding factors have an important role in pancreatic beta-cell physiology not only directly by regulation of gene trans-activation but also indirectly by regulation of beta-cell mass.