Neprilysin contributes to free fatty acid (FFA)-induced cellular dysfunction in nonislet tissues in type 2 diabetes. Here, we show for the first time that with prolonged FFA exposure, islet neprilysin is upregulated and this is associated with reduced insulin pre-mRNA and ATP levels, oxidative/nitrative stress, impaired potassium and calcium channel activities, and decreased glucose-stimulated insulin secretion (GSIS). Genetic ablation of neprilysin specifically protects against FFA-induced impairment of calcium influx and GSIS in vitro and in vivo but does not ameliorate other FFA-induced defects. Importantly, adenoviral overexpression of neprilysin in islets cultured without FFA reproduces the defects in both calcium influx and GSIS, suggesting that upregulation of neprilysin per se mediates insulin secretory dysfunction and that the mechanism for protection conferred by neprilysin deletion involves prevention of reduced calcium influx. Our findings highlight the critical nature of calcium signaling for normal insulin secretion and suggest that interventions to inhibit neprilysin may improve β-cell function in obese humans with type 2 diabetes.