The prevalence of diabetes is increasing rapidly world-wide. A cardinal feature of most forms of diabetes is the lack of insulin-producing capability, due to the loss of insulin-producing β-cells, impaired glucose-sensitive insulin secretion from the β-cell, or a combination thereof, the reasons for which largely remain elusive. Reversible phosphorylation is an important and versatile mechanism for regulating the biological activity of many intracellular proteins, which, in turn, controls a variety of cellular functions. For instance, significant changes in protein kinase activities and in protein phosphorylation patterns occur subsequent to stimulation of insulin release by glucose. Therefore, the molecular mechanisms regulating phosphorylation of proteins involved in the insulin secretory process by the β-cell have been extensively investigated. However, far less is known about the role and regulation of protein dephosphorylation by various protein phosphatases. Herein we review extant data implicating serine/threonine and tyrosine phosphatases in various aspects of healthy and diabetic islet biology, ranging from control of hormonal stimulus-secretion coupling to mitogenesis and apoptosis.