Heterozygous coding sequence mutations of the INS gene are a cause of permanent neonatal diabetes (PNDM), requiring insulin therapy similar to T1D. While the negative effects on insulin processing and secretion are known, how dominant insulin mutations result in a continued decline of beta cell function after birth is not well understood. We explored the causes of beta cell failure in two PNDM patients with two distinct INS mutations using patient-derived iPSCs and mutated hESCs. we detected accumulation of misfolded proinsulin and impaired proinsulin processing in vitro, and a dominant-negative effect of these mutations on beta-cell mass and function after transplantation into mice. In addition to anticipated ER stress, we found evidence of beta-cell dedifferentiation, characterized by an increase of cells expressing both Nkx6.1 and ALDH1A3, but negative for insulin and glucagon. These results highlight a novel mechanism, the loss of beta cell identity, contributing to the loss and functional failure of human beta cells with specific insulin gene mutations. •A stem cell model of permanent neonatal diabetes (PNDM) due to insulin mutations.•Insulin mutations cause accumulation of misfolded proinsulin, insulin multimers, and impaired secretion.•Insulin misfolding mutations promote de-differentiation to insulin negative, ALDH1A3 and NKX6.1 positivecells.•Insulin processing defects and de-differentiation affect beta cell function within different time frames.•Gene correction demonstrates promise for autologous cell therapy for insulin-dependent diabetes.