Pituitary adenylate cyclase-activating polypeptide (PACAP) is an intraislet neuropeptide and shares insulinotropic and insulin-sensitizing properties with glucagon-like peptide-1 (GLP-1); however, the pathophysiological significance of PACAP in diabetes remains largely unknown. To assess this, we crossed our recently developed transgenic mice overexpressing PACAP in pancreatic beta-cells (Tg/+), with lethal yellow agouti (KKA(y)) mice (A(y)/+), a genetic model for obesity-diabetes, and examined the metabolic and morphological phenotypes of F(1) animals. Tg/+ mice with the A(y) allele (Tg/+:A(y)/+) developed maturity-onset obesity and diabetes associated with hyperglycemia, hyperlipidemia, and hyperphagia, similar to those of A(y)/+ mice, but hyperinsulinemia was significantly ameliorated in Tg/+:A(y)/+ mice. Although A(y)/+ mice exhibited a marked increase in islet mass resulting from hyperplasia and hypertrophy, this increase was significantly attenuated in Tg/+:A(y)/+ mice. Size frequency distribution analysis revealed that the very large islets comprising one-fourth of islets of A(y)/+ mice were selectively reduced in Tg/+:A(y)/+ mice. Because functional defects have been demonstrated in the large islets of obese animal models, together these findings suggest that PACAP regulates hyperinsulinemia and the abnormal increase in islet mass that occurs during the diabetic process.