Heterozygous coding sequence mutations of the INS gene are a cause of permanent neonatal diabetes (PNDM) that results from beta cell failure. We explored the causes of beta cell failure in two PNDM patients with two distinct INS mutations. Using b and mutated hESCs, we detected accumulation of misfolded proinsulin and impaired proinsulin processing in vitro, and a dominant-negative effect of these mutations on the in vivo performance of patient-derived SC-beta cells after transplantation into NSG mice. These insulin mutations derange endoplasmic reticulum (ER) homeostasis, and result in the loss of beta-cell mass and function. In addition to anticipated apoptosis, we found evidence of beta-cell dedifferentiation, characterized by an increase of cells expressing both Nkx6.1 and ALDH1A3, but negative for insulin and glucagon. These results highlight both known and novel mechanisms contributing to the loss and functional failure of human beta cells with specific insulin gene mutations.