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Decrease of pancreatic β cells leads to diabetes. In an inducible cAMP early suppressor (ICER-Iγ) transgenic mouse model of severe type 2 diabetes with reduced insulin production and depleted β cells, supplementation with high concentrations of 17β-estradiol (E2) markedly enhances β-cell proliferation and normalizes glucose levels. The current study explored the underlying mechanisms leading to a dynamic increase of β cells and pathologic changes in diabetic mice exposed to E2. Gene expression profiling of pancreatic islets of 6-month–old ICER-transgenic mice recovering from diabetes due to elevated E2 levels identified growth regulation by estrogen in breast cancer 1 (Greb1) as a gene significantly up-regulated during the recovery phase. To substantiate this, β-cell–specific Greb1-deficient mice were generated, and Greb1 was shown to be essential for recovery of depleted β cells in diabetic mice. Graft growth and glucose lowering were observed in 50 islets with increased Greb1 expression transplanted adjacent to E2 pellets beneath the kidney capsule of streptozotocin-induced diabetic mice. Greb1 expression due to a drastic increase in exogenous or endogenous E2 was transient and closely correlated with changes in E2-related and some cell cycle–related genes. These findings provide new insights into in vivoproliferation of deficient β cells and suggest the possibility of new therapeutic approaches targeting pancreatic β cells that could revolutionize the concept of diabetes treatment, which has been considered difficult to cure completely.