Type 1 diabetes (T1D) results from autoimmune destruction of β-cells in the pancreas. Protein tyrosine phosphatases (PTPs) are candidate genes for T1D and play a key role in autoimmune disease development and β-cell dysfunction. Here, we assessed the global protein and individual PTP profiles in the pancreas from nonobese mice with early-onset diabetes (NOD) mice treated with an anti-CD3 monoclonal antibody and interleukin-1 receptor antagonist. The treatment reversed hyperglycemia, and we observed enhanced expression of PTPN2, a PTP family member and T1D candidate gene, and endoplasmic reticulum (ER) chaperones in the pancreatic islets. To address the functional role of PTPN2 in β-cells, we generated PTPN2-deficient human stem cell–derived β-like and EndoC-βH1 cells. Mechanistically, we demonstrated that PTPN2 inactivation in β-cells exacerbates type I and type II interferon signaling networks and the potential progression toward autoimmunity. Moreover, we established the capacity of PTPN2 to positively modulate the Ca2+-dependent unfolded protein response and ER stress outcome in β-cells. Adenovirus-induced overexpression of PTPN2 partially protected from ER stress–induced β-cell death. Our results postulate PTPN2 as a key protective factor in β-cells during inflammation and ER stress in autoimmune diabetes.