Identification of signaling pathways that maintain and promote adult pancreatic islet functions will accelerate our understanding of organogenesis and improve strategies for treating diseases like diabetes mellitus. Previous work has implicated transforming growth factor-beta (TGF-beta) signaling as an important regulator of pancreatic islet development, but has not established whether this signaling pathway is required for essential islet functions in the adult pancreas. Here we describe a conditional system for expressing Smad7, a potent inhibitor of TGF-beta signaling, to identify distinct roles for this pathway in adult and embryonic beta cells. Smad7 expression in Pdx1+ embryonic pancreas cells resulted in striking embryonic beta cell hypoplasia and neonatal lethality. Conditional expression of Smad7 in adult Pdx1+ cells reduced detectable beta cell expression of MafA, menin, and other factors that regulate beta cell function. Reduced pancreatic insulin content and hypoinsulinemia produced overt diabetes that was fully reversed upon resumption of islet TGF-beta signaling. Thus, our studies reveal that TGF-beta signaling is crucial for establishing and maintaining defining features of mature pancreatic beta cells.