Gut-released peptide YY (PYY) plays a crucial role in energy and glucose homeostatic regulation both, centrally as well as peripherally. In addition to the gut, PYY is also expressed in the pancreatic islets of Langerhans with highest levels found in α-cells, but its specific function in controlling these processes remains largely unknown. To this end, we have generated a transgenic mouse model expressing the PYY gene under the control of the rat insulin 2 (Ins2) gene promoter (PYYtg-INSCre) in the pancreatic beta cells. Body weight, body composition, glucose and insulin tolerance were determined and compared with wild type and RIPCre mice. Serum insulin levels were also measured. We found that transgenic PYYtg-INSCre mice were not different from either WT or RIPCre mice in body weight and food intake. However, compared to WT mice, fat mass in the RIPCre mice was significantly increased, and overexpression of PYY in the beta cells in PYYtg-INSCre mice reduced fat mass of RIPCre mice to the level similar to WT. Basal glucose level was unchanged in PYYtg-INSCre mice, but basal insulin level was significantly decreased compared to RIPCre mice. More importantly, glucose intolerance was developed in male and female RIPCre mice, possibly due to impaired first-phase insulin secretion. In contrast, despite lower insulin levels than RIPCre mice, PYYtg-INSCre mice displayed improved glucose tolerance, particularly in females, compared to RIPCre mice, indicating a possibility of increased insulin sensitivity. In summary, pancreas-derived PYY plays an important role in controlling body composition and alters glucose tolerance through the modulation of insulin secretion and/or sensitivity.