Lipotoxicity is a presumed pathogenetic process whereby elevated circulating and stored lipids in type 2 diabetes cause pancreatic β-cell failure. To resolve the underlying molecular mechanisms, we exposed clonal INS-1 832/13 β-cells to palmitate for 48 h. We observed elevated basal insulin secretion but impaired glucose-stimulated insulin secretion in palmitate-exposed cells. Glucose utilization was unchanged, palmitate oxidation was increased, and oxygen consumption was impaired. Halting exposure of the clonal INS-1 832/13 β-cells to palmitate largely recovered all of the lipid-induced functional changes. Metabolite profiling revealed profound but reversible increases in cellular lipids. Glucose-induced increases in tricarboxylic acid cycle intermediates were attenuated by exposure to palmitate. Analysis of gene expression by microarray showed increased expression of 982 genes and decreased expression of 1032 genes after exposure to palmitate. Increases were seen in pathways for steroid biosynthesis, cell cycle, fatty acid metabolism, DNA replication, and biosynthesis of unsaturated fatty acids; decreases occurred in the aminoacyl-tRNA synthesis pathway. The activity of histone-modifying enzymes and histone modifications of differentially expressed genes were reversibly altered upon exposure to palmitate. Thus, Insig1, Lss, Peci, Idi1, Hmgcs1, and Casr were subject to epigenetic regulation. Our analyses demonstrate that coordinate changes in histone modifications, mRNA levels, and metabolite profiles accompanied functional adaptations of clonal β-cells to lipotoxicity. It is highly likely that these changes are pathogenetic, accounting for loss of glucose responsiveness and perturbed insulin secretion.