G-protein coupled receptor 120 (GPR120) has been shown to act as an omega-3 unsaturated fatty acid sensor and is involved in insulin secretion. However, the underlying mechanism in pancreatic β cells remains unclear. To explore the potential link between GPR120 and β-cell function, its agonists docosahexaenoic acid (DHA) and GSK137647A were used in palmitic acid (PA)-induced pancreatic β-cell dysfunction, coupled with GPR120 knockdown (KD) in MIN6 cells and GPR120 knockout (KO) mice to identify the underlying signaling pathways. In vitro and ex vivo treatments of MIN6 cells and islets isolated from wild-type (WT) mice with DHA and GSK137647A restored pancreatic duodenal homeobox-1 (PDX1) expression levels and β-cell function via inhibiting PA-induced elevation of proinflammatory chemokines and activation of nuclear factor κB, c-Jun amino (N)-terminal kinases1/2 and p38MAPK signaling pathways. On the contrary, these GPR120 agonism-mediated protective effects were abolished in GPR120 KD cells and islets isolated from GPR120 KO mice. Furthermore, GPR120 KO mice displayed glucose intolerance and insulin resistance relative to WT littermates, and β-cell functional related genes were decreased while inflammation was exacerbated in islets with increased macrophages in pancreas from GPR120 KO mice. DHA and GSK137647A supplementation ameliorated glucose tolerance and insulin sensitivity, as well as improved Pdx1 expression and islet inflammation in diet-induced obese WT mice, but not in GPR120 KO mice. These findings indicate that GPR120 activation is protective against lipotoxicity-induced pancreatic β-cell dysfunction, via the mediation of PDX1 expression and inhibition of islet inflammation, and that GPR120 activation may serve as a preventative and therapeutic target for obesity and diabetes.