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A GaN-based high electron mobility transistor (HEMT) with p-GaN islands buried layer (PIBL) for terahertz applications is proposed. The introduction of a p-GaN island redistributes the electric field in the gate–drain channel region, thereby promoting the formation of electronic domains in the two-dimensional electron gas (2DEG) channel. The formation and regulation mechanism of the electronic domains in the device are investigated using Silvaco-TCAD software. Simulation results show that the 0.2 μm gate HEMT with a PIBL structure having a p-GaN island doping concentration (N p) of 2.5 × 1018 cm−3–3 × 1018 cm−3 can generate stable oscillations up to 344 GHz–400 GHz under the gate–source voltage (V gs) of 0.6 V. As the distance (D p) between the p-GaN island and the heterojunction interface increases from 5 nm to 15 nm, the fundamental frequency decreases from 377 GHz to 344 GHz, as well as the ratio of oscillation current amplitude of the fundamental component to the average component I f/I avg ranging from 2.4% to 3.84%.