Genetic studies revealed that the ablation of insulin/IGF-1 signaling in the pancreas causes diabetes. FoxO1 is a downstream transcription factor of insulin/IGF-1 signaling. We previously reported that FoxO1 haploinsufficiency restored β cell mass and rescued diabetes in IRS2 knockout mice. However, it is still unclear whether FoxO1 dysregulation in the pancreas could be the cause of diabetes. To test this hypothesis, we generated transgenic mice overexpressing constitutively active FoxO1 specifically in the pancreas (TG). TG mice had impaired glucose tolerance and some of them indeed developed diabetes due to the reduction of β cell mass, which is associated with decreased Pdx1 and MafA in β cells. We also observed increased proliferation of pancreatic duct epithelial cells in TG mice and some mice developed a polycystic pancreas as they aged. Furthermore, TG mice exhibited islet hypervascularities due to increased VEGF-A expression in β cells. We found FoxO1 binds to the VEGF-A promoter and regulates VEGF-A transcription in β cells. We propose that dysregulation of FoxO1 activity in the pancreas could account for the development of diabetes and pancreatic cysts.