Clinical evidence that the blockade of IL-1β in type-2 diabetic patients improves glycemia is indicative of an autoinflammatory mechanism that may trigger adiposity-driven pancreatic damage. IL-1β is a key contributor to the obesity-induced inflammation and subsequent insulin resistance, pancreatic β-cell dysfunction, and the onset of type 2 diabetes. Our previous studies demonstrated that the ceramides activate the Nod-like receptor family, pyrin domain containing 3 (Nlrp3) inflammasome to cause the generation of mature IL-1β and ablation of the Nlrp3 inflammasome in diet-induced obesity improves insulin signaling. However, it remains unclear whether the posttranslational processing of active IL-1β in pancreas is regulated by the NLRP3 inflammasome or whether the alternate mechanisms play a dominant role in chronic obesity-induced pancreatic β-cell exhaustion. Here we show that loss of ASC, a critical adaptor required for the assembly of the NLRP3 and absent in melanoma 2 inflammasome substantially improves the insulin action. Surprisingly, despite lower insulin resistance in the chronically obese NLRP3 and ASC knockout mice, the insulin levels were substantially higher when the inflammasome pathway was eliminated. The obesity-induced increase in maturation of pancreatic IL-1β and pancreatic islet fibrosis was dependent on the NLRP3 inflammasome activation. Furthermore, elimination of NLRP3 inflammasome protected the pancreatic β-cells from cell death caused by long-term high-fat feeding during obesity with significant increase in the size of the islets of Langerhans. Collectively, this study provides direct in vivo evidence that activation of the NLRP3 inflammasome in diet-induced obesity is a critical trigger in causing pancreatic damage and is an important mechanism of progression toward type 2 diabetes.