Recently, missense mutations upstream of preproinsulin's signal peptide (SP) cleavage site were reported to cause mutant INS gene-induced diabetes of youth (MIDY). Our objective was to understand the molecular pathogenesis using metabolic labeling and assays of proinsulin export and insulin and C-peptide production to examine the earliest events of insulin biosynthesis, highlighting molecular mechanisms underlying β-cell failure plus a novel strategy that might ameliorate the MIDY syndrome. We find that whereas preproinsulin-A(SP23)S is efficiently cleaved, producing authentic proinsulin and insulin, preproinsulin-A(SP24)D is inefficiently cleaved at an improper site, producing two subpopulations of molecules. Both show impaired oxidative folding and are retained in the endoplasmic reticulum (ER). Preproinsulin-A(SP24)D also blocks ER exit of coexpressed wild-type proinsulin, accounting for its dominant-negative behavior. Upon increased expression of ER-oxidoreductin-1, preproinsulin-A(SP24)D remains blocked but oxidative folding of wild-type proinsulin improves, accelerating its ER export and increasing wild-type insulin production. We conclude that the efficiency of SP cleavage is linked to the oxidation of (pre)proinsulin. In turn, impaired (pre)proinsulin oxidation affects ER export of the mutant as well as that of coexpressed wild-type proinsulin. Improving oxidative folding of wild-type proinsulin may provide a feasible way to rescue insulin production in patients with MIDY.