Glucocorticoid excess predisposes to the development of diabetes, at least in part through impairment of insulin secretion. The underlying mechanism has remained elusive. We show here that dexamethasone up-regulates transcription and expression of the serum- and glucocorticoid-inducible kinase 1 (SGK1) in insulin secreting cells, an effect reversed by mifepristone (RU486), an antagonist of the nuclear glucocorticoid receptor. When coexpressed in Xenopus oocytes, SGK1 increases the activity of voltage-gated K+ channel K(v)1.5. In INS-1 cells, dexamethasone stimulates the transcription of K(v)1.5, increases the repolarizing outward current, reduces peak values of [Ca2+](i) oscillations, and decreases glucose-induced insulin release. The latter effect is reversed by K+ channel blockers 4-aminopyridine and tetraethylammonium and by a more selective K(v)1.5 channel inhibitor MSD-D. Dexamethasone also increases expression of K(v)1.5 in mouse islets and reduces glucose-induced insulin secretion, an effect reversed by MSD-D. In islets isolated from wild-type but not SGK1 knockout mice, dexamethasone significantly blunted glucose-, forskolin-, and phorbol myristic acid-induced insulin release. In conclusion, dexamethasone stimulates the transcription of SGK1, which in turn upregulates the activity of voltage-gated K+ channels. Increased K+ channel activity reduces Ca2+ entry through voltage-gated Ca2+ channels and insulin release.