Despite obesity being a predisposing factor for pancreatic β-cell dysfunction and loss, the mechanisms underlying its negative effect on insulin-secreting cells remain poorly understood. In this study, we identify an islet-enriched long non-coding RNA (lncRNA), which we name β-cell function and apoptosis regulator (βFaar). βFaar is dramatically downregulated in the islets of the obese mice, and a low level of βFaar is necessary for the development of obesity-associated β-cell dysfunction and apoptosis. Mechanistically, βFaar promote the synthesis and secretion of insulin by upregulating islet-specific genes Ins2, NeuroD1, and Creb1 through sponging miR-138-5p. In addition, using quantitative mass spectrometry, we identify TRAF3IP2 and SMURF1 as interacting proteins that are specifically associated with βFaar. We demonstrate that SMURF1 ubiquitin ligase activity is essential for TRAF3IP2 ubiquitination and activation of NF-κB-mediate β-cell apoptosis. Our experiments provide direct evidence that dysregulated βFaar contributes to the development of obesity-induced β-cell injury and apoptosis.