Metabolic transformation of glucocorticoid hormones constitutes a determinant of their cell-specific effects. The most important reaction for this class of steroids is the reversible C11 keto/beta-hydroxyl conversion between receptor-binding 11beta-OH steroids and the nonbinding 11-oxo compounds, carried out by 11beta-hydroxysteroid dehydrogenases (11beta-HSDs). In this study, we determined the role of glucocorticoid conversion by 11beta-HSD in pancreatic islets and its function in the regulation of insulin release. Pancreatic islets isolated from ob/ob mice display type 1 11beta-hydroxysteroid dehydrogenase activity, i.e. in intact cells the reductive reaction prevails, leading from dehydrocorticosterone to corticosterone. Expression of type 1 11beta-HSD mRNA was detected by reverse transcriptase-polymerase chain reaction in islets isolated from ob/ob mice and also from human tissue. Incubation of beta-cells in the presence of 11-dehydrocorticosterone leads to a dose-dependent inhibition of insulin release, indicating cellular activation of 11-dehydrocorticosterone to the receptor ligand, further confirmed by reporter gene assays. Inhibition of 11beta-HSD activity by carbenoxolone reverses inhibition of insulin release. The presence of 11beta-HSD in islets supports the concept that reactivation of inert circulating hormone precursors in a cell-specific manner plays a major role in glucocorticoid physiology in rodents and man.