IER3IP1 mutations are linked to the development of microcephaly, epilepsy, and early-onset diabetes syndrome 1. However, the underlying molecular mechanisms of cell dysfunction are unknown. Using targeted genome editing, we generated specific IER3IP1 mutations in human embryonic stem cell lines that were differentiated into pancreatic islet lineages. Loss of IER3IP1 resulted in a threefold reduction in endoplasmic reticulum-to-Golgi trafficking of proinsulin in stem cell-derived β-cells, leading to β-cell dysfunction both in vitro and in vivo. Loss of IER3IP1 also triggered increased markers of endoplasmic reticulum stress, indicating the pivotal role of the endoplasmic reticulum-to-Golgi trafficking pathway for β-cell homeostasis and function.