Obesity is a principal risk factor for type 2 diabetes, and elevated fatty acids reduce beta-cell function and survival. An unbiased proteomic screen was used to identify targets of palmitate in beta-cell death. The most significantly altered protein in both human islets and MIN6 beta-cells treated with palmitate was carboxypeptidase E (CPE). Palmitate reduced CPE protein levels within 2 h, preceding endoplasmic reticulum (ER) stress and cell death, by a mechanism involving CPE translocation to Golgi and lysosomal degradation. Palmitate metabolism and Ca(2+) flux were also required for CPE proteolysis and beta-cell death. Chronic palmitate exposure increased the ratio of proinsulin to insulin. CPE null islets had increased apoptosis in vivo and in vitro. Reducing CPE by approximately 30% using shRNA also increased ER stress and apoptosis. Conversely, overexpression of CPE partially rescued beta-cells from palmitate-induced ER stress and apoptosis. Thus, carboxypeptidase E degradation contributes to palmitate-induced beta-cell ER stress and apoptosis. CPE is a major link between hyperlipidemia and beta-cell death pathways in diabetes.