Insulin secretion from β-cells is tightly regulated by local signaling from preproglucagon (Gcg) products from neighboring α-cells. Physiological paracrine signaling within the microenvironment of the β-cell is altered after metabolic stress, such as high-fat diet or the β-cell toxin, streptozotocin. Here, we examined the role and source of Gcg peptides in β-cell function and in response to STZ-induced hyperglycemia. We utilized whole body Gcg null (GcgNull) mice and mice with Gcg expression either specifically within the pancreas (GcgΔPanc) or the intestine (GcgΔIntest). With lower doses of STZ exposure, insulin levels were greater and glucose levels were lower in GcgNull mice compared to wildtype mice. When Gcg was functional only in the intestine, plasma GLP-1 levels were fully restored but these mice did not have any additional protection from STZ-induced diabetes. Pancreatic Gcg reactivation normalized the hyperglycemic response to STZ. In animals not treated with STZ, GcgNull mice had increased pancreas mass via both α- and β-cell hyperplasia and reactivation of Gcg in the intestine normalized β- but not α-cell mass while pancreatic reactivation normalized both β- and α-cell mass. GcgNull and GcgΔIntest mice maintained higher β-cell mass after treatment with STZ compared to control and GcgΔPanc mice. Although in vivo insulin response to glucose was normal, global lack of Gcg impaired glucose-stimulated insulin secretion in isolated islets. Congenital replacement of Gcg either in the pancreas or intestine normalized glucose-stimulated insulin secretion. Interestingly, mice that had intestinal Gcg reactivated in adulthood had impaired insulin response to KCl. We surmise that the expansion of β-cell mass in the GcgNull mice compensated for decreased individual β-cell insulin secretion, which is sufficient to normalize glucose under physiological conditions and conferred some protection after STZ-induced diabetes.