It is known that the LIM homeodomain transcription factor Isl1 is highly expressed in all pancreatic endocrine cells and functions in regulating pancreatic development and insulin secretion. The Isl1 mutation has been found to be associated with type 2 diabetes, but the mechanism responsible for Isl1 regulation of insulin synthesis and secretion still needs to be elucidated. In the present study, the protein inhibitor of activated STAT Y (PIASy) was identified as a novel Isl1-interacting protein with a yeast two-hybrid system, and its interaction with Isl1 was further confirmed by a co-immunoprecipitation experiment. PIASy and Isl1 colocalize in human and mouse pancreas and NIT beta cells. Furthermore, PIASy and Isl1 upregulate insulin gene expression and insulin secretion in a dose-dependent manner by activating the insulin promoter. PIASy and Isl1 mRNA expression levels were also increased in type 2 diabetic db/db mice. In addition, our results demonstrate that PIASy and Isl1 cooperate to activate the insulin promoter through the Isl1 homeodomain and PIASy ring domain. These data suggest that that PIASy regulates insulin synthesis and secretion by interacting with Isl1 and provide new insight into insulin regulation, although the detailed molecular mechanism needs to be clarified in future studies.