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The failure of β-cells has a central role in the pathogenesis of type 2 diabetes, and the identification of novel approaches to improve functional β-cell mass is essential to prevent/revert the disease. Here we show a critical novel role for thrombospondin 1 (THBS1) in β-cell survival during lipotoxic stress in rat, mouse and human models. THBS1 acts from within the endoplasmic reticulum to activate PERK and NRF2 and induce a protective antioxidant defense response against palmitate. Prolonged palmitate exposure causes THBS1 degradation, oxidative stress, activation of JNK and upregulation of PUMA, culminating in β-cell death. These findings shed light on the mechanisms leading to β-cell failure during metabolic stress and point to THBS1 as an interesting therapeutic target to prevent oxidative stress in type 2 diabetes.