Mesencephalic astrocyte-derived neurotrophic factor (MANF) is an endoplasmic reticulum (ER)–resident protein that plays a crucial role in attenuating ER stress responses. Although MANF is indispensable for the survival and function of mouse β-cells, its precise role in human β-cell development and function is unknown. In this study, we show that lack of MANF in humans results in diabetes due to increased ER stress, leading to impaired β-cell function. We identified two patients from different families with childhood diabetes and a neurodevelopmental disorder associated with homozygous loss-of-function mutations in the MANF gene. To study the role of MANF in human β-cell development and function, we knocked out the MANF gene in human embryonic stem cells and differentiated them into pancreatic endocrine cells. Loss of MANF induced mild ER stress and impaired insulin-processing capacity of β-cells in vitro. Upon implantation to immunocompromised mice, the MANF knockout grafts presented elevated ER stress and functional failure, particularly in recipients with diabetes. By describing a new form of monogenic neurodevelopmental diabetes syndrome caused by disturbed ER function, we highlight the importance of adequate ER stress regulation for proper human β-cell function and demonstrate the crucial role of MANF in this process.