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Objective: 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. Methods: We explored the causes of beta cell failure in two PNDM patients with two distinct INS mutations using patient-derived iPSCs and mutated hESCs. Results: 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. Conclusions: 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.