Dysfunction or death of pancreatic β cells underlies both types of diabetes. This functional decline begins with β cell stress and de-differentiation. Current drugs for type 2 diabetes (T2D) lower blood glucose levels but they do not directly alleviate β cell stress nor prevent, let alone reverse, β cell de-differentiation. We show here that Urocortin 3 (Ucn3), a marker for mature β cells, is down-regulated in the early stages of T2D in mice and when β cells are stressed in vitro. Using an insulin expression-coupled lineage tracer, with Ucn3 as a reporter for the mature β cell state, we screen for factors that reverse β cell de-differentiation. We find that a small molecule inhibitor of TGFβ receptor I (Alk5) protects cells from the loss of key β cell transcription factors and restores a mature β cell identity even after exposure to prolonged and severe diabetes.