It has previously been shown that misfolded mutant Akita proinsulin in the endoplasmic reticulum engages directly in protein complexes either with nonmutant proinsulin or with "hProCpepGFP" (human proinsulin bearing emerald-GFP within the C-peptide), impairing the trafficking of these "bystander" proinsulin molecules (Liu, M., Hodish, I., Rhodes, C. J., and Arvan, P. (2007) Proc. Natl. Acad. Sci. U.S.A. 104, 15841-15846). Herein, we generated transgenic mice, which, in addition to expressing endogenous proinsulin, exhibit beta-cell-specific expression of hProCpepGFP via the Ins1 promoter. In these mice, hProCpepGFP protein levels are physiologically regulated, and hProCpepGFP is packaged and processed to CpepGFP that is co-stored in beta-secretory granules. Visualization of CpepGFP fluorescence provides a quantifiable measure of pancreatic islet insulin content that can be followed in live animals in states of health and disease. We examined loss of pancreatic insulin in hProCpepGFP transgenic mice mated to Akita mice that develop neonatal diabetes because of the expression of misfolded proinsulin. Loss of bystander insulin in Akita animals is detected initially as a block in CpepGFP/insulin production with intracellular accumulation of the precursor, followed ultimately by loss of pancreatic beta-cells. The data support that misfolded proinsulin perturbs bystander proinsulin in the endoplasmic reticulum, leading to beta-cell failure.