The phosphatidylinositol-3-kinase-dependent kinase, Akt2, plays a central role in mediating insulin effects in glucose-metabolizing tissues. Akt2 knockout mice display insulin resistance with a reactive increase in pancreatic islet mass and hyperinsulinemia. The related phosphatidylinositol-3-kinase-dependent kinase, serum- and glucocorticoid-regulated kinase 3 (SGK3), is essential for normal postnatal hair follicle development but plays no apparent role in glucose homeostasis. We report here an unexpected role of SGK3 in islet β-cell function, which is revealed in Akt2/SGK3 double-knockout (DKO) mice. DKO mice have markedly worse glucose homeostasis than Akt2 single-null animals, including greater baseline glucose, and greater rise in blood glucose after glucose challenge. However, surprisingly, our data strongly support the idea that this exacerbation of the glucose-handling defect is due to impaired β-cell function, rather than increased insulin resistance in peripheral tissues. DKO mice had lower plasma insulin and C-peptide levels, lower β-cell mass, reduced glucose-stimulated insulin secretion, and greater sensitivity to exogenous insulin than Akt2 single nulls. We further demonstrated that SGK3 is strongly expressed in normal mouse islets and, interestingly, that β-catenin expression is dramatically lower in the islets of DKO mice than in those of Akt2(-/-)/SGK3(+/+) or Akt2(-/-)/SGK3(+/-) mice. Taken together, these data strongly suggest that SGK3 plays a previously unappreciated role in glucose homeostasis, likely through direct effects within β-cells, to stimulate proliferation and insulin release, at least in part by controlling the expression and activity of β-catenin.