Chronic exposure of pancreatic islets to elevated plasma lipids (lipotoxicity) can lead to beta-cell dysfunction, overtime becoming irreversible. We examined, by confocal microscopy and biochemistry, whether the expression of islet inducible nitric oxide synthase (iNOS) and the concomitant inhibition of glucose-stimulated insulin release seen after lipid infusion in rats was modulated by the islet neuropeptide PACAP27. Lipid infusion for 8 days induced a strong expression of islet iNOS, which was mainly confined to beta-cells, and was still evident after incubating islets at 8.3 mmol/l glucose. This was accompanied by a high iNOS-derived NO generation, a decreased insulin release and increased cyclic GMP accumulation. No iNOS expression was found in control islets. Addition of PACAP27 to incubated islets from lipid-infused rats resulted in loss of iNOS protein expression, increased cyclic AMP, decreased cyclic GMP and suppression of the activities of neuronal constitutive NOS (ncNOS) and iNOS and increased glucose-stimulated insulin response. These effects were reversed by the PKA inhibitor H-89. The suppression of islet iNOS expression induced by PACAP27 was not affected by the proteasome inhibitor MG 132, which by itself induced the loss of iNOS protein making a direct proteasomal involvement less likely. Our results suggest that PACAP27 through its cyclic AMP- and PKA-stimulating capacity strongly suppresses not only ncNOS but, importantly, also the lipid-induced stimulation of iNOS expression possibly by a non-proteasomal mechanism. Thus PACAP27 restores the impairment of glucose-stimulated insulin release and additionally might induce cytoprotection against deleterious actions of iNOS-derived NO in beta-cells.