Mouse models of Streptozotocin (STZ) induced diabetes represent the most widely used preclinical diabetes research systems. We applied state of the art optical imaging schemes, spanning from single islet resolution to the whole organ, providing a first longitudinal, 3D-spatial and quantitative account of β-cell mass (BCM) dynamics and islet longevity in STZ-treated mice. We demonstrate that STZ-induced β-cell destruction predominantly affects large islets in the pancreatic core. Further, we show that hyperglycemic STZ-treated mice still harbor a large pool of remaining β-cells but display pancreas-wide downregulation of glucose transporter type 2 (GLUT2). Islet gene expression studies confirmed this downregulation and revealed impaired β-cell maturity. Reversing hyperglycemia by islet transplantation partially restored the expression of markers for islet function, but not BCM. Jointly our results indicate that STZ-induced hyperglycemia results from β-cell dysfunction rather than β-cell ablation and that hyperglycemia in itself sustains a negative feedback loop restraining islet function recovery.