β-cell dedifferentiation has been revealed as a pathological mechanism underlying pancreatic dysfunction in diabetes. We previously showed that increased miR-7 levels trigger β-cell dedifferentiation and diabetes. We used β-cell-specific miR-7 overexpressing mice (Tg7) to test the hypothesis that loss of β-cell identity triggered by miR-7 overexpression alters islet gene expression and islet microenvironment in diabetes. We performed bulk and single-cell RNA sequencing (RNA-seq) in islets obtained from β-cell-specific miR-7 overexpressing mice (Tg7). We carried out loss- and gain-of-function experiments in MIN6 and EndoC-bH1 cell lines. We analysed previously published mouse and human T2D data sets. Bulk RNA-seq revealed that β-cell dedifferentiation is associated with the induction of genes associated with epithelial-to-mesenchymal transition (EMT) in prediabetic (2-week-old) and diabetic (12-week-old) Tg7 mice. Single-cell RNA-seq (scRNA-seq) indicated that this EMT signature is enriched specifically in β-cells. These molecular changes are associated with a weakening of β-cell: β-cell contacts, increased extracellular matrix (ECM) deposition, and TGFβ-dependent islet fibrosis. We found that the mesenchymal reprogramming of β-cells is explained in part by the downregulation of Pdx1 and its inability to regulate a myriad of epithelial-specific genes expressed in β-cells. Notable among genes transactivated by Pdx1 is Ovol2, which encodes a transcriptional repressor of the EMT transcription factor Zeb2. Following compromised β-cell identity, the reduction in Pdx1 gene expression causes a decrease in Ovol2 protein, triggering mesenchymal reprogramming of β-cells through the induction of Zeb2. We provided evidence that EMT signalling associated with the upregulation of Zeb2 expression is a molecular feature of islets in T2D subjects. Our study indicates that miR-7-mediated β-cell dedifferentiation induces EMT signalling and a chronic response to tissue injury, which alters the islet microenvironment and predisposes to fibrosis. This research suggests that regulators of EMT signalling may represent novel therapeutic targets for treating β-cell dysfunction and fibrosis in T2D. •Pancreatic β-cell dedifferentiation triggers an EMT gene programme in diabetes.•Induction of TGFβ signalling in dedifferentiated β-cells alters islet microenvironments and contributes to islet fibrosis.•Pdx1 inhibits EMT signalling by transactivating Ovol2, a repressor of Zeb2 in mature β-cells.•Inverse correlation between Pdx1 and Zeb2 gene expression in islets from T2D subjects.