<jats:p>OBJECTIVE—Glucagon, which raises blood glucose levels by stimulating hepatic glucose production, is produced in α-cells via cleavage of proglucagon by prohormone convertase (PC)-2. In the enteroendocrine L-cell, proglucagon is differentially processed by the alternate enzyme PC1/3 to yield glucagon-like peptide (GLP)-1, GLP-2, and oxyntomodulin, which have blood glucose–lowering effects. We hypothesized that alteration of PC expression in α-cells might convert the α-cell from a hyperglycemia-promoting cell to one that would improve glucose homeostasis.</jats:p> <jats:p>RESEARCH DESIGN AND METHODS—We compared the effect of transplanting encapsulated PC2-expressing αTC-1 cells with PC1/3-expressing αTCΔPC2 cells in normal mice and low-dose streptozotocin (STZ)-treated mice.</jats:p> <jats:p>RESULTS—Transplantation of PC2-expressing α-cells increased plasma glucagon levels and caused mild fasting hyperglycemia, impaired glucose tolerance, and α-cell hypoplasia. In contrast, PC1/3-expressing α-cells increased plasma GLP-1/GLP-2 levels, improved glucose tolerance, and promoted β-cell proliferation. In GLP-1R−/− mice, the ability of PC1/3-expressing α-cells to improve glucose tolerance was attenuated. Transplantation of PC1/3-expressing α-cells prevented STZ-induced hyperglycemia by preserving β-cell area and islet morphology, possibly via stimulating β-cell replication. However, PC2-expressing α-cells neither prevented STZ-induced hyperglycemia nor increased β-cell proliferation. Transplantation of αTCΔPC2, but not αTC-1 cells, also increased intestinal epithelial proliferation.</jats:p> <jats:p>CONCLUSIONS—Expression of PC1/3 rather than PC2 in α-cells induces GLP-1 and GLP-2 production and converts the α-cell from a hyperglycemia-promoting cell to one that lowers blood glucose levels and promotes islet survival. This suggests that alteration of proglucagon processing in the α-cell may be therapeutically useful in the context of diabetes.</jats:p>